Special Economic Zones in The OIC-Region PDF

Special Economic Zones in the OIC Region:
Learning from Experience
COMCEC Coordination Office

October 2017
COMCEC Coordination Office

October 2017
This report has been commissioned by the COMCEC Coordination Office to BuroHappold
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Table of Contents
EXECUTIVE SUMMARY 1
Defining Special Economic Zones 1
Global SEZ Experiences 1
SEZ Development in OIC Member Countries 2
Conclusions and Recommendations 4
1 INTRODUCTION AND BACKGROUND TO THE STUDY 6

1.1 Purpose of this Report 6
1.2 Report Structure 6
2 SPECIAL ECONOMIC ZONE TYPOLOGIES 7

2.1 Introduction 7
2.2 Definition of SEZs 7
2.3 Working SEZ Typologies 8
2.4 Organisational Structure 10
2.5 Ownership of SEZs 10
2.6 Economic Rationale for Establishing SEZs 11
2.7 Incentive Schemes used in SEZs 18
3 LEARNING LESSONS FROM GLOBAL SEZ EXPERIENCE 23

3.1 Introduction 23
3.2 Emerging Global Trends 23
3.3 Development of Cross Country and Tripartite SEZs 27
3.4 Key Challenges to SEZ Success 29
4 TRENDS IN SEZS IN OIC MEMBER COUNTRIES 34

4.1 Profiling SEZs within OIC Member Countries 34
4.2 SEZ Benchmarking within OIC Member Countries 38
4.3 Evaluation of SEZ Development in OIC Member Countries 53
4.4 Key Successes of SEZ Development in OIC Member Countries 57
4.5 Challenges of SEZ Development in OIC Member Countries 59
5 LESSONS LEARNT FROM SEZ CASE STUDIES 66

5.1 Methodology 66
5.2 Case Study 1: Penang SEZ, Malaysia 68
5.3 Case Study 2: Jurong SEZ, Singapore 89
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5.4 Case Study 3: Tanger Med SEZ, Morocco 104
5.5 Case Study 4: Aqaba Free Zone, Jordan 127
5.6 Case Study 5: Lekki Free Zone, Nigeria 141
5.7 Case Study 6: Bole Lemi Industrial Park, Ethiopia 153
6 SYNTHESIS AND CONCLUSIONS 162

6.1 Introduction 162
6.2 Key Organisational Factors 162
6.3 Key Economic Success Factors 171
6.4 Key Physical / Spatial Factors 174
7 ANNEX I – CASE STUDY SITE VISITS – ADDITIONAL DETAILS 176

7.1 List of Interviewed Persons 176
7.2 List of Interview Questions 177
8 ANNEX II – BIBLIOGRAPHY 180
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List of Tables
Table 2-1 - Special Economic Zone Typologies ......................................................................................................................... 9
Table 4-1 - OIC Member Countries with SEZ Development .............................................................................................. 34
Table 4-2 - Zones Selected for Comparative Benchmarking within OIC Member Countries ............................ 39
Table 4-3 - Comparative Matrix of Incentives within Selected OIC Member State SEZs .................................... 50
Table 4-4 - Comparative Analysis of Selected OIC member state SEZs ....................................................................... 54
Table 4-5 - Estimates of Direct Employment and Exports in SEZ Regions ................................................................ 60
Table 5-1 - Detailed Case Studies – Selected Zones .............................................................................................................. 67
Table 5-2 - Penang SEZ Overview ................................................................................................................................................. 68
Table 5-3 – Penang Industrial Zone Development ............................................................................................................... 70
Table 5-4 – Spatial Profile – Penang SEZ ................................................................................................................................... 71
Table 5-5 – Penang Sector Focus .................................................................................................................................................. 75
Table 5-6 – Penang SEZ - Economic Performance Summary ........................................................................................... 77
Table 5-7 - Jurong SEZ Overview .................................................................................................................................................. 89
Table 5-8 – Jurong FTZ – Spatial Components ........................................................................................................................ 92
Table 5-9 - Jurong Qualifying Criteria ......................................................................................................................................... 94
Table 5-10 – Jurong Island FTZ Economic Performance Summary .............................................................................. 98
Table 5-11 – Tanger Med Zones ................................................................................................................................................. 104
Table 5-12 – Tanger Med Zones Overview ............................................................................................................................ 104
Table 5-13 - Spatial Profile – Tanger Med Zones ................................................................................................................ 107
Table 5-14 – Tanger Med Zones Primary Sectoral Focus ............................................................................................... 116
Table 5-15 - Commercial and Lease Offer – Tanger Med Zones .................................................................................. 117
Table 5-16 – TMZs Economic Performance Summary ..................................................................................................... 118
Table 5-17 – Aqaba Free Zone Overview ............................................................................................................................... 127
Table 5-18 – Aqaba Ports Overview ......................................................................................................................................... 130
Table 5-19 – Aqaba Economic Performance Summary ................................................................................................... 136
Table 5-20 - Costs within Lekki Free Zone ............................................................................................................................ 148
Table 5-21 – Lekki Free Zone Economic Performance .................................................................................................... 149
Table 5-22 – Bole Lemi Free Zone Economic Performance ........................................................................................... 158
Table 7-1 - Details of Stakeholders Interviewed – Tanger Med Zones ..................................................................... 176
Table 7-2 - Details of Stakeholders Interviewed – Penang FIZs .................................................................................. 176
Table 7-3 - Details of Stakeholders Interviewed – Lekki Free Zone .......................................................................... 176
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List of Figures
Figure 1 – Total Number of SEZs by OIC Member State ..................................................................................................... 35
Figure 2 – Total SEZs by Typology within OIC Member Countries ............................................................................... 36
Figure 3 – SEZ Typologies by OIC Member Countries ......................................................................................................... 37
Figure 4 - Size of Selected SEZs within OIC Member Countries ...................................................................................... 42
Figure 5 – Distance from Major Ports (km) within Selected OIC Member State SEZs ......................................... 43
Figure 6 – Distance from Major Airport (km) within Selected OIC Member SEZs ................................................. 45
Figure 7 – Capacity of Ports in Proximity to Selected OIC Member SEZs (million TEU) ..................................... 46
Figure 8 – Capacity of Airports in Proximity to Selected OIC Member SEZs ............................................................ 47
Figure 9 - Firms by Hectare within Selected OIC Member SEZs ..................................................................................... 48
Figure 10 - Jobs per Hectare within Selected OIC Member SEZs ................................................................................... 48
Figure 11 – Average Monthly Downtime due to Power Outages – SSA African SEZs ........................................... 61
Figure 12 – Penang FIZs and Industrial Estates ..................................................................................................................... 72
Figure 13 – Penang GBS / SSO / IT Sector Focus – %. Companies ................................................................................ 76
Figure 14 – Origin of Multi-national Companies within Penang .................................................................................... 78
Figure 15 – Economic Growth within PDC Industrial Zones............................................................................................ 79
Figure 16 - GDP Annual Growth Rates – Penang and Malaysia ...................................................................................... 80
Figure 17 - Malaysian GDP per Capita (constant $) ............................................................................................................. 81
Figure 18 - Malaysian Export Values ($Bn) ............................................................................................................................. 82
Figure 19 - Malaysian FDI – Net Inflows ($Bn) ...................................................................................................................... 82
Figure 20 – Jurong Island and Freeport - Overview............................................................................................................. 90
Figure 21 – Jurong Island and Freeport Organogram ......................................................................................................... 96
Figure 22 - Domestic Exports of Chemical Products in Singapore – 1997 to 2016 ($m) ................................... 99
Figure 23 - Singapore GDP per Capita (constant $)........................................................................................................... 100
Figure 24 - Singapore Export Values ($Bn)........................................................................................................................... 100
Figure 25 - Tanger Med Industrial Platform Overview ................................................................................................... 105
Figure 26 - Organisational Profile ............................................................................................................................................. 112
Figure 27 - Morocco GDP per Capita (constant $) ............................................................................................................. 120
Figure 28 - Morocco Export Values ($Bn).............................................................................................................................. 120
Figure 29 - Morocco Foreign Direct Investment – Net Inflows ($Bn) ...................................................................... 121
Figure 30 - Aqaba SEZ Location .................................................................................................................................................. 129
Figure 31 - Aqaba SEZ Organisational Profile ...................................................................................................................... 132
Figure 32 - Aqaba SEZ Land Use Mix (Actual – Left vs Planned – Right)................................................................. 135
Figure 33 - Jordan GDP per Capita (constant $) .................................................................................................................. 137
Figure 34 - Jordan Export Values ($Bn) .................................................................................................................................. 137
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Figure 35 - Jordan FDI – Net FDI Inflows ($Bn) .................................................................................................................. 138
Figure 36 – Lekki Free Zone ......................................................................................................................................................... 141
Figure 37 - Nigeria FDI – Net inflows ($) ............................................................................................................................... 149
Figure 38 - Nigeria Exports of Goods and Services (current $ Bn) ............................................................................ 150
Figure 39 - Manufacturing Value Added (% of GDP) ........................................................................................................ 150
Figure 40 – Bole Lemi Industrial Park ..................................................................................................................................... 153
Figure 41 - Foreign Direct Investment – Net Inflows (current $ millions)............................................................. 159
Figure 42 - Manufacturing Value Added (annual % growth) ....................................................................................... 159
Figure 43 – Sector Selection Methodology ............................................................................................................................ 172
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List of Box Case Studies
Box 1 - Poland SEZs – FDI Stimulation .................................................................................................................................... 12
Box 2 - United Arab Emirates – SEZ Programmes and Economic Diversification ................................................. 13
Box 3 - Jordanian SEZs and Employment Opportunities for Women .......................................................................... 15
Box 4 - China and Economic Reform through SEZs .............................................................................................................. 16
Box 5 - Expedition of Permits and Clearances ........................................................................................................................ 19
Box 6 - Flexibility of Labour Laws ............................................................................................................................................... 20
Box 7 - Central America Maquiladoras Programme ........................................................................................................... 27
Box 8 - Thailand’s SEZ Programme .............................................................................................................................................. 28
Box 9 - Kaesong SEZ Programme .................................................................................................................................................. 28
Box 10: Khorgos – Eastern Gate Special Economic Zones ................................................................................................. 29
Box 11 - Workers Rights in India’s SEZs ................................................................................................................................... 31
Box 12 - Backward and Forward Linkages within Dominican Republic SEZs ........................................................ 33
Box 13 - Jebel Ali Free Zone ............................................................................................................................................................. 44
Box 14 - Dubai Free Zones Council – Coordinated Approach to Incentives and Policies ................................... 50
Box 15 - Malaysian EPZs ................................................................................................................................................................... 58
Box 16 - Bangladesh EPZs ................................................................................................................................................................ 58
Box 17 - Egypt TEDA Zone – Chinese Investment ................................................................................................................ 59
Box 18 - Infrastructure Financing in Nigerian SEZs ............................................................................................................. 61
Box 19 - Legal and Regulatory Framework in Nigerian SEZs .......................................................................................... 62
Box 20 - Conflicts between Public and Private Operators - Bangladesh .................................................................... 62
Box 21 - SEZ Development in Nigeria – Calabar EPZ ........................................................................................................... 63
Box 22 - SEZ Development in Bangladesh ................................................................................................................................ 64
Box 23 - Dakar EPZ – Challenges to Investment ................................................................................................................... 64
Box 24 - Backward Linkages in Tunisian SEZs ....................................................................................................................... 65
Box 25 – Penang SEZ Success Factors – Evolution of Legal Framework – PDC Interview ................................. 73
Box 26 – Penang SEZ Success Factors – Masterplan Approach – PDC Interview ................................................... 74
Box 27 – Penang SEZ Success Factors – Penang Investment Promotion ................................................................... 75
Box 28 – Penang SEZ Success Factors – Penang Competitive Advantage - InvestPenang Interview ............ 75
Box 29 – Penang SEZ Success Factors – The Role of PDC in Development and Operation ................................ 77
Box 30 – Penang SEZ Success Factors – Economic Strategy – PDC Interview ......................................................... 83
Box 31 – Penang SEZ Success Factors – Skills and Industry – Interviews with Former Members of PDC . 84
Box 32 – Tanger Med Success Factors – Pillar 1 Royal Vision – TMSA Interview ............................................... 106
Box 33 – Tanger Med Success Factors – Pillar 2 Infrastructure Investment – TMSA Interview .................. 110
Box 34 - Tanger Med Success Factors – Pillar 3 One-Stop-Shop – TMSA Interview .......................................... 114
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Box 35 - Tanger Med Success Factors – Pillar 4 Market Access – TMSA Interview............................................ 119
Box 36 - Tanger Med Success Factors – Pillar 5 Qualified Labour Force – TMSA Interview.......................... 122
Box 37 – Standard Profil Interview – Tanger Med Free Zone ...................................................................................... 122
Box 38 – Siemens Gamesa Interview – Tanger Automotive City ................................................................................ 123
Box 39 – Lekki Free Zone – Challenges in Infrastructure Provision ......................................................................... 143
Box 40 – Lekki Free Zone Success Factors – Economic Success Factors ................................................................. 151
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List of Acronyms
ASEZA Aqaba Special Economic Zone Authority

ADC Aqaba Development Corporation
BOT Built Operate Transfer
CAGR Compound Annual Growth Rate
E&E Electrical and Electronics
EPZ Export Processing Zone
ETDZ Economic and Technological Development Zone
EZ Enterprise Zone
FDI Foreign Direct Investment
FEZ Free Economic Zones
FIZ Free Industrial Zone
FTA Free Trade Agreement
FTZ Free Trade Zone
FZ Free Zone
GBS Global Business Services
GDP Gross Domestic Product
GST Goods and Services Tax
HIDZ High-tech Industrial Development Zone
JTC Jurong Town Corporation
LMW Licensed Manufacturing Warehouse
MIDA Malaysian Investment Development Agency
MOU Memorandum of Understanding
MNC Multi-National Company
OIC Organisation of Islamic Cooperation
PDC Penang Development Corporation
PPP Public Private Partnership
PSDC Penang Skills Development Centre
SEZ Special Economic Zone
SME Small-to-Medium Enterprise
SSO Shared Services and Outsourcing
TME Tanger Med Engineering
TMSA Tanger Med Special Agency
TMU Tanger Med Utilities
TMZs Tanger Med Zones
WTO World Trade Organisation
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Executive Summary
The objective of this report is to provide a comprehensive reference document to support policy
formulation, programme design and implementation of Special Economic Zone (SEZ) projects
within OIC member countries. It may also be used to guide member countries in the reforming
of existing SEZ projects.
This report serves as a database of experiences, lessons learnt and best practices in the process
of considering and deploying SEZs and provides an objective assessment of the effectiveness of
SEZs in the delivery of expected and achieved economic benefits, as well as their drawbacks and
limitations.
The objective of the study is to achieve the following:
1. To provide a resource document on OIC SEZs;

2. To explore the performance and economic impact of SEZs implementation in the
OIC Member States; and
3. To provide policy options and guidelines for establishing successful SEZs.
Defining Special Economic Zones
In broad terms, SEZs can be defined as demarcated geographic areas contained within a
country’s national boundaries where the rules of business are different from those that prevail
in the national territory.
The result of these enhanced conditions is that the zone is provided with a business environment
which is intended to be more conducing to value added through private sector investment from
a policy perspective and more effective from an administrative perspective than that of the
national territory.
Underpinning the development of SEZ programmes there are many multi-faceted reasons for
their selection as policy instrument. Broadly however they are typically concerned with
achieving a number of economic and policy objectives such as increasing foreign direct
investment, facilitating economic diversification and reform and generating employment.
Critical success factors for SEZs include their ability to attract investment and create jobs, their
ability to deliver structural transformation and to catalyse economic reforms; and their impact
on social and environmental objectives.
Global SEZ Experiences

It was estimated that there were around 3,500 special economic zones worldwide by the mid-
2000s. Although many of these are single factory zones, it shows a rapid expansion since the
mid-1980s when it was estimated that there were just over 170.
1
The predominant typology has changed from Traditional EPZs to more mixed special economic
zones with multiuse developments incorporating industrial, commercial, residential and even
tourism activities. Some are moving to highly specialised developments focusing on high-end
services such as ICT and biotech. Another trend is to see the increasing importance of private
sector involvement and a move away from purely publically funded schemes.
In countries which initially developed SEZ formats for industrial growth, from the 1950s to the
1970s, the ongoing focus has tended to be on the continuation or closure of existing SEZs in the
context of national economic policy reforms. In contrast, a number of countries which
implemented SEZs more recently from the 1980s and into the 2000s, have increasingly focused
on how to enhance their zones' competitiveness in the context of the thousands of other zones
now in operation. One of the most pressing challenges for SEZs globally therefore, and
particularly new ones coming on-stream now, is how to assert a unique investment proposition
that maximises competitiveness and goes beyond standard format infrastructure provision or
increasingly common forms of fiscal incentivisation.
As the number of SEZs increases globally and they are increasingly seen as a policy tool to attract
investment it will also become increasingly important for zones and countries to look beyond
administrative borders and develop integrated approaches to SEZ development; particularly
with regards to legal and regulatory frameworks such as export policies and fiscal incentives.
SEZ Development in OIC Member Countries

In total it is estimated that there are approximately 242 SEZs operating within 33 OIC Member
Countries. SEZ development has been a key focus within the Middle East with the UAE (20%),
Saudi Arabia (11%), Iran (9%), Jordan (6%) and Oman (4%) accounting for approximately half
of all SEZs within OIC Member Countries.
Comparative analysis indicates that the most common typology recorded within OIC Member
Countries are Free Trade Zones (FTZs), following by Export Processing Zones (EPZs), Hybrid
EPZs and Special Economic Zones (SEZs). Analysis of these zones show that they cover a very
broad range of common sectors similar to those recorded globally within SEZ programmes.
Analysis of spatial characteristics found that like many global trends, SEZs within OIC Member
Countries were typically located close to both port and airport infrastructure nodes with some
of the most successful SEZs incorporating port development either within or adjacent to the
zone.
Analysis of employment and enterprise statistics, whilst limited by reliability and availability,
indicates that there is a significant range in the density of employment and firms between SEZs
within OIC Member Countries. However it is noted that those zones with well-established zone
authorities and investment agencies have become very successful at attracting both enterprises
2
and generating jobs within their respective zones. This is reflected within the key successes of
SEZ development in OIC Member Countries which are predominantly found within Asian and
Arab OIC regions.
Figure E1 - Total Number of SEZs by OIC Member Country
Uzbekistan 3
United Arab Emirates 49
Uganda 1
Turkey 18
Tunisia 2
Togo 5
Sudan 3
Saudi Arabia 27
Senegal 1
Qatar 4
Pakistan 9
Oman 11
Nigeria 13
Mozambique 5
Morocco 3
Malaysia 5
Libya 1
Lebanon 2
Kazakhstan 5
Kuwait 2
Jordan 15
Iran 21
Indonesia 5
Gambia 1
Gabon 1
Egypt 9
Djibouti 1
Benin 1
Bangladesh 8
Bahrain 6
Algeria 1
Albania 3
0 10 20 30 40 50 60
Source: BuroHappold Analysis 2017
This study has also highlighted the difficulties in regions such as African in SEZ development
which has faced significant challenges in generating significant economic impacts due to issues
including poor governance and regulatory environment, inefficient zone management
3
arrangements, unreliable and poor quality infrastructure and some political and social
developments; all of which have had detrimental impacts on investment.
Conclusions and Recommendations

Based on the information and data available to the authors, this report has shown that at present
there are approximately 33 OIC Member Countries which have established SEZ programmes,
with a number more who have aspirations to develop future programmes. Whilst data is not
available for all zones, there has been a clear increase in the number of zones established since
the start of the millennium with 63% of zones established since 2000 within OIC Member
Countries.
Whilst it is acknowledged that there are no ‘one-size-fits-all’ solutions to SEZ development there
are a number of key success factors which have been identified which government, operators
and investors could implement in the design, implementation and operation of SEZ programmes
within OIC Member Countries. These experiences have informed the following
recommendations:
Organizational Success Factors
 SEZ programmes need to be programmed and designed as core components of a

national economic strategy;
 An evidence-based approach should be used to demonstrate why SEZs constitute an
appropriate form of policy intervention;
 The economic rationale for the development of an SEZ programme also needs to be
grounded in an appreciation of the existing factors constraining economic performance;
 It is important to determine the right type of SEZ development model and this should
be aligned to the policy objectives. Flexibility in model development is important to
present the most attractive value proposition to the market;
 SEZ programmes should be driven by a range of government departments and agencies
in order for it to be successful;
 Executive support for an SEZ programme is critical for ensuring that all those in
government understand that the programme is an executive priority;
 Formulation of SEZ working groups can be a key tool in ensuring that the full range of
issues and opportunities that an SEZ programme generates is captured and to ensure
lateral support from relevant stakeholders;
 It should be clearly defined as to how the SEZ programme will be governed and how
investors will be attracted and serviced. This may include the establishment of an
oversight body;
4
 Legal and regulatory framework should specifically consider investor requirements;

 Investment promotion agencies or ‘one-stop-shops’ are effective tools for targeting
inward investment in SEZs and to facilitating a significantly more attractive
environment for potential investors;
 Fiscal incentives should be focused on the sectors and strategies which are being
targeted by the proposed zone programme and should not be used as the main
differentiator between competing zones.
Economic Success Factors
 The correct choice of SEZ target industry-sectors should be based on a robust feasibility
study to ensure that the comparative advantages of the country, region or site are fully
utilised and that the key challenges and risks have been considered;
 When designing SEZ programmes consideration should be given to trade policy,
strategic and sectoral focus, zone typology, policies on domestic participation and
policies on access to local market to ensure favourable conditions for facilitating
backward and forward linkages between the SEZ and domestic economy; and
 There should be a clear vision from the inception of an SEZ programme on which
economic impacts are being targeted and the extent of the impacts. These should be
monitored on a regular basis to ensure that targets are being met.
Physical / Spatial Success Factors
 Zone should be designed to exploit pre-existing advantages that are the products of
concentration, such as the presence of existing infrastructure such as ports or airports
which offer international connectivity;
 Site selection should considered early on in developing a national SEZ strategy and
should utilise a number of key criteria linked to target industry-sectors and associated
investors and tenants;
 The provision of high quality infrastructure is a key comparative advantage when
looking to attract FDI;
 Options for governments and zone authorities to work with development partners or to
secure PPP arrangements with the private sector to facilitate investment in
infrastructure can be successful models of infrastructure financing and operation.
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1 Introduction and Background to the Study

1.1 Purpose of this Report
The objective of this report is to provide a comprehensive reference document to support policy
formulation, programme design and implementation of Special Economic Zone (SEZ) projects
within OIC member countries. It may also be used to guide member countries in the reforming
of existing SEZ projects.
This report serves as a database of experiences, lessons learnt and best practices in the process
of considering and deploying SEZs and provides an objective assessment of the effectiveness of
SEZs in the delivery of expected and achieved economic benefits, as well as their drawbacks and
limitations.
The objective of the study is to achieve the following:
 To provide a resource document on OIC SEZs;

 To explore the performance and economic impact of SEZs implementation in the OIC
Member Countries;
 To learn from successful zones in non-OIC Member Countries; and
 To provide policy options and guidelines for establishing successful SEZs within OIC
Member Countries.
1.2 Report Structure

The structure of this report corresponds to the following key stages set out below:
 Section 2: defines SEZs, including an overview of the dominant typologies, governance

structures, incentive regimes, infrastructure offerings and the economic and financial
objectives which underpin SEZ development;
 Section 3: explores the trends, experiences and factors of success and identifies the
challenges confronting non-performers across SEZs globally;
 Section 4: provides an overview of SEZ development within OIC Countries including
desktop analysis of the nature and performance of these SEZs. A process of comparative
and competitive benchmarking has been undertaken against a selected series of SEZs;
 Section 5: provides a detailed overview of SEZs in four OIC Member Countries and two
Non-OIC Countries through case study analysis of their performance and economic
impacts; and
 Section 6: provides conclusions and recommendations based on the findings of the
study analysis with particular focus on policy design and implementation in
determining the success and failure of SEZ projects.
6
2 Special Economic Zone Typologies

2.1 Introduction
This section aims to define what SEZs are, the different typologies which exist, as well as the
governance structures, incentives regimes, infrastructure offerings and the economic and
financial objectives which drive development of SEZs within different zones both in OIC Member
Countries and elsewhere.
This section will outline the broad typologies of SEZs and the broad motivations and objectives
behind the deployment of SEZs as a policy tool as well as the various incentive schemes used in
SEZ development.
2.2 Definition of SEZs

In broad terms, SEZs can be defined as demarcated geographic areas contained within a
country’s national boundaries where the rules of business are different from those that prevail
in the national territory. These differential rules principally deal with:
 Investment conditions – including the provision of infrastructure, serviced land and

flexible lease and purchasing options;
 International trade and customs - typically access to imported inputs free of tariffs
and duties;
 Taxation – including the elimination of corporate taxes, VAT, other taxes and labour
contributions; and
 The regulatory environment – such as more efficient processes for company set up,
licensing and operations, often through establishment of a ‘one-stop-shop’
arrangement.
The result of these enhanced conditions is that the zone is provided with a business environment
which is intended to be more conducive to value added through private sector investment from
a policy perspective, and more effective from an administrative perspective, than that of the
national territory. In this sense SEZs can be characterised by three distinctive attributes:
1. A dedicated regulatory regime;

2. A dedicated physical infrastructure; and
3. A dedicated governance structure.
With regards to the regulatory regime, SEZs typically require a separate legal framework that
has to be passed by national government and/or parliament.
In addition to specific legal, regulatory and administrative conditions, SEZs are also defined by
their spatial characteristics. Development of SEZs globally shows that zones are typically
7
developed alongside physical infrastructure such as port and airport infrastructure which
connect zones to regional and global markets as well as connect zone producers to inputs and
sources. In addition SEZs are typically provided with real estate, roads, electricity, water and
telecommunications to support the activities of the enterprises operating within the zones and
to create a business environment conducive to inward investment. This provision can be used
to differentiate SEZs from the domestic economy in countries where significant challenges exist
in providing low-cost and reliable infrastructure.
2.3 Working SEZ Typologies

The World Bank1 defines SEZs as falling within six broad typologies:
 Free Trade Zones (FTZs): also known as commercial free zones, they are usually
fenced in, duty free areas offering warehousing, storage and distribution facilities for
trade, trans-shipment and re-export operations;
 Export Processing Zones (EPZ): are typically industrial estates aimed primarily at the
production of goods destined for foreign markets;
 Hybrid EPZs2: are typically sub-divided into a general zone open to all industries and a
separate EPZ area reserved for export-orientated, EPZ-registered enterprises;
 Enterprise Zones: are intended to revitalise distressed urban or rural areas through
the provision of tax incentives and financial grants;
 Freeports: typically encompass much larger areas. They accommodate all types of
activities, including tourism and retail sales, permit on-site residence, and provide a
broader set of incentives and benefits;
 Single Factory EPZs: provide incentives to individual enterprises regardless of
location; factories do not have to locate within a designated zone to receive incentives
and privileges; and
 Specialised Zones: such as science/technology parks, petrochemical zones, logistics
parks and airport based zones.
The following table provides a broad overview of the physical characteristics, economic
objectives, typical activities and example case studies within each identified typology globally.
1 World Bank (2008), SEZs: Performance, Lessons learned and Implications for Zone Development.
2This definition has been included although it is acknowledged that there is currently some debate within the World Bank
over the validity of this SEZ type.
8
Table 2-1 - Special Economic Zone Typologies
Industrial Free Commercial Financial Special
Free Port IT / Science Park Tourism Zone Enterprise Zone
Zone / EPZ Free Zone Services Zone Economic Zone
Warehouse
Physical Entire city or Enclave or area, often Business park- Business park – Entire Entire province Part of city or
Characteristics jurisdiction industrial park adjacent to port adjacent to city near university jurisdiction or municipality entire city
or airport
Development of Development of
Development of Development of Deregulation,
export Facilitation of off-shore Integrated Development of
Economic trading centre technology- private sector
manufacturing trade and banking, tourism SMEs in
Objectives and diversified intensive investment in
/ assembly imports insurance, development depressed areas
economic base industry restricted area
industry securities hub
Data
Warehousing, processing,
Trade, service, Light industry All types of
Typical packaging, Financial software Resorts and
industry, and industry and All
Activities distribution, services development, other tourism
banking etc. manufacturing services
trans-shipment computer
graphics
Colombia –
China-Hainan
Ireland, Korea, India- Baru,
Hong Kong, Bahrain, Dubai, and Shenzen,
Typical Malaysia, Jebel Ali, Colon, Bangalore, Philippines-
Singapore, Mauritius, Jordan – Aqaba, US, Europe
Examples Dominican Mauritius, Iran China – Dalian, Cagayan de Oro,
Batam Uruguay Philippines –
Republic, Kenya Poland-Krakow Jordan- Dead
Subic Bay
Sea DZ
Source: BuroHappold 2017
9
2.4 Organisational Structure

SEZs are also defined by their organisational structure with regards to how and who is involved
in their development, operation, regulation and marketing. There are a number of key
governance roles which vary between zones, these include:3
 Regulator – typically a government body with oversight authority. The regulator

typically ensures that the regulatory environment is more streamlined and efficient
than that found domestically;
 Developer – can either be a public or a private body which is responsible for design,
planning and managing the development of infrastructure and facilities within the SEZ;
and
 Operator and Service Providers – again can either be a public, private or quasi-public
body responsible for day-to-day management of services to the site investors, tenants
and workforce.
The various roles and responsibilities involved in these governance structures as well as their
relationship to existing public sector ministries, departments and agencies can often result in
institutional complexity. This can lead to ineffective coordination in delivering the outcomes of
an SEZ programme. One of the key solutions to this is the creation of a ‘One-Stop-Shop’ which
can help to improve the efficiency of approvals for initial set-up and ongoing operations as well
as providing a key link between business and government, reducing excessive bureaucracy. One-
Stop-Shops can also play a key role in marketing and attracting investment to an SEZ as well as
providing ‘aftercare’ to tenants to ensure that continuing investment needs and requirements
are met.
There can however be political difficulties in establishing effective One-Stop-Shops as it requires

some government ministries, agencies or departments to yield powers, particularly with regard
to the delegation of decision making and legal powers on matters such as visas, permits and
license approvals.
2.5 Ownership of SEZs

Since the establishment of the first modern SEZ in Shannon, Ireland in the 1959, the number of
SEZ projects has increased exponentially. In particular there has been an increase in the number
of privately developed and operated zones worldwide. A key factor behind the rise of private
zones is the realisation that SEZs can be profitably operated on the part of developers and that
the burden on public sector resources can be reduced.1
3 Farole, Baissac & Gauthier (2012) Special Economic Zones: A Guidance Framework for Policymaking.
10
The emergence of public-private partnerships (PPPs) has also become more common place
within SEZ development, with a number of different models evolving, including:
 Public sector provision of off-site infrastructure and services (utilities, connections,

roads etc.) as an incentive for private sector investment within on-site infrastructure
and facilities;
 Public sector assembly of land parcels with secure title and development rights for lease
to private sector zone development groups;
 Build-operate transfer (BOT) and build-own-operate approaches to on-site and off-site
zone infrastructure and facilities with government guarantees and/or financial support;
 Contracting private management companies for the management of public sector
owned zones or lease of public sector owned assets by a private operator; and
 Equity-shifting arrangements whereby a private contract manager of a government-
owned zone can exercise a purchase option once pre-defined performance levels have
been reached.
The role of the private sector within SEZ development has resulted in a more diversified offer
for investors, with zones incorporating a wider range of facilities, services and amenities. It has
also been observed that private zone development has resulted in SEZs and Industrial Estates
being developed on an integrated basis rather than a stand-alone basis, alongside the provision
of business support services and specialized facilities which cater to higher valued added
industries and thus subsequently higher rental values.
It has been noted 45 that in some cases private-led zones result in reduced development and
operational costs (from the perspective of the host country) and perform better in economic
terms, such as increased FDI and job creation. These zones typically offer better facilities and
amenities and attract ‘higher end’ types of activities and as a result have tended to be more
profitable and have better social and environmental performance standards than public sector
led zones.
2.6 Economic Rationale for Establishing SEZs

Whilst there are many multi-faceted reasons behind the deployed of SEZs, they are typically
concerned with achieving one or more of the following economic and policy objectives. These
are outlined in further detail in this section. The purpose of this section is to provide a broad
overview of the typical economic rationale behind the establishment of SEZ programmes.
4 OEDC (2009) Towards Best Practice Guidelines for the Development of Economic Zones.
5 FIAS (2008) Special Economic Zones: Performance, Lessons Learned and Implications for Zone Development.
11
Further detail on the success of such programmes and their key challenges is set out in Section
3 and Section 4.
2.6.1 Attracting Foreign Direct Investment (FDI)

The vast majority of SEZs are created to achieve greater levels of foreign direct investment
within the host country. The creation of SEZs can highlight to foreign investors that a country or
state is committed to foreign investment and can incentivise investment. The creation of more
effective investment environments with greater transparency and competitiveness can also
encourage and enable increased levels of FDI. By providing a variety of incentives, as well as a
higher quality physical operating environment, SEZs are utilised to attract investment that
might not otherwise consider the country as a possible location for investment. SEZs can also
reduce the risks to investment within locations and markets which are considered challenging.
Box 1 - Poland SEZs – FDI Stimulation6 7 8 9
Poland established its SEZ programme in 1995, with FDI incentivisation a key aim of the
programme. It was recorded that between 1970 and 1985 the average annual FDI inflow to
Poland was $US 6.7 billion. Following adoption of the SEZ programme in 1995, the FDI inflows
into Poland totalled $US 158.6 billion over the period to 2010. It was recorded that over this
period FDI in SEZs was in excess of $US 21.9 billion demonstrating the significant contribution
these zones made to FDI inflows following their establishment.
2.6.2 Facilitating Economic Diversification
Economic diversification objectives are often a key driver in SEZ implementation, particularly
within Countries which have identified an overreliance on specific natural resources to support
economic growth. SEZ development can help to facilitate the gradual emergence of services and
an export-oriented manufacturing sector. A key success story has been the creation of Mauritius’
6 UNCTAD, Inward and Outward Foreign Direct Investment Flows, Annual, 1970-2013 (2014)
<http://unctad.org/en/pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx>.
7 Ministry of Treasury, Government of Poland, Special Economic Zones in Poland: A Boost for FDI (2013)
<http://msp.gov.pl/en/polish-economy/economic-news/4425,Special-Economic-Zones-in-Poland-a-boost-for-FDI.html>.
8 UNCTAD, Inward and Outward Foreign Direct Investment Flows, Annual, 1970-2013 (2014)
<http://unctad.org/en/pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx>.
9 EY Special Economic Zones Beyond 2020: Analysis of Current Activities and an Outlook for their Existence (2011)
<www.uokik.gov.pl/download.php?plik=11856>; KPMG, A Guide to Special Economic Zones in Poland (2009)
<https://www.kpmg.com/PL/en/IssuesAndInsights/ArticlesPublications/Documents/A-Guide-to-Special-Economic-Zones-
in-Poland.pdf>; UNCTAD, Inward and Outward Foreign Direct Investment Flows, Annual, 1970-2013 (2014)
<http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx>.
12
EPZ which has contributed to national diversification away from sugar exports to the clothing
and services sector.
A further, associated benefit of SEZs is the transfer of knowledge and innovative processes from
inward investors into the wider economy. SEZs are often targeted towards investors that can
not only viably establish operations in a country but which also have the potential to transfer
new business and industrial processes into the economy, as well as more efficient business
operations and behaviours. This can occur ‘naturally’ through the procurement of inputs via
local supply chains and enhanced local competition, or proactively via complementary policies
and obligations that require the incoming investor to actively share knowledge and business
practice.
Box 2 - United Arab Emirates – SEZ Programmes and Economic Diversification10
Economic diversification has been a primary aim of the establishment of Free Trade Zones within
the UAE and of the UAE’s Vision 2021 strategy. In the first instance, a number of FTZs were
established in the 1980s to 1990s, the most prominent example being the Jebel Ali Free Zone in
Dubai and competitive re-exporting activities quickly established themselves within the zones,
outside of the domestic controls and regulations stipulated by the traditional ‘Kafala’
(sponsorship) system.
It is now estimated that free zone trade accounts for a third of the UAE’s non-oil economy and
approximately 80% of non-oil exports. These zones have been extremely successful in stimulating
non-oil trade and investment within the emirates. Particular examples include the establishment
of the Dubai International Financial Centre, which has been crucial in increasing non-oil exports
and services within the Emirate within a sharia-compliant financial sector. Similarly Abu Dhabi
established the TwoFour 54 zone to drive investment and activity within the Emirates’ Arabic
media and entertainment industry.
It is recorded that the UAE now accommodates a total of 47 free zones with a focus on a broad
range of sectors including trade, clean energy, industry, ICT, media, finance, gold and metals and
health care.
2.6.3 Employment Creation and Skills Upgrade

A large number of SEZs have been implemented in areas of depressed economic growth and high
unemployment to stimulate significant job creation, reduce poverty rates and increase living
standards. The creation of SEZs can also facilitate human capital development, reduce social
problems, generate government revenue streams (from income taxation), reduce government
expenditure on unemployment benefits and provide markets for domestically produced goods
and services.
10 Shayah, M and Qifeng, Y (2015) Development of Free Zones in United Arab Emirates.
13
Depending on the regulatory and legislative framework, SEZs can result in significant direct
employment provision for local workers. SEZs can also generate significant indirect
employment opportunities within local supply chains as companies within the zones source
inputs from outside the zone across the domestic economy. Indirect employment multipliers
range from approximately 0.25 indirect employees per direct employee within Mauritius’ EPZ
to 2.0 indirect employees per direct employee within Honduran SEZs.11
In terms of labour force, businesses within SEZs are also more likely to provide employment
opportunities for women than those outside of SEZs given the propensity for targeted business
activities to be non-dependent on manual labour. Previous evidence suggests that female
employees can account for between 60% - 70% of the SEZ workforce globally, with some zones
comprising up to 90% female workforce.12
Furthermore, through prioritising and targeting specific types of investors in key sectors, SEZs
can be used as a mechanism for developing and upgrading the local and regional skills base. This
in turn will have an additional positive impact on regional and national competitiveness as well
as poverty alleviation.
Investors can be targeted on the basis that they will create job opportunities with higher level
skill requirements and that this will in turn improve overall skill levels across the local labour
force. Often this process requires complementary activities on the part of the host government,
offering education and skills programmes that help create an appropriate labour supply for the
investor and its associated supply chain. The creation of jobs that have more sophisticated
technical and managerial characteristics are often sought from FDI. In many cases, senior
managerial jobs will have to be filled by nationals of the investor’s origin country, due to a lack
of these skills locally. However, again with appropriate complementary policies, involvement
with educational institutions and obligations placed upon the investor, these skills can also be
developed within the local labour force.
11Gokhan Akinci and James Crittle, 'Economic Performance and Impacts', in Gokhan Akinci and James Crittle (eds), Special
Economic Zones: Performance, Lessons Learned, and Implications for Zone Development (WB Group, 2008)
12WB Group, 'Fostering Women’s Economic Empowerment Through Special Economic Zones: Comparative Analysis of Eight
Countries and Implications for Governments, Zone Authorities and Businesses' (Report, June 2011)
14
Box 3 - Jordanian SEZs and Employment Opportunities for Women12
There are a number of examples where SEZs have been used to promote employment
opportunities for women, particularly within developing countries. It is observed that SEZs
can often provide the first entry into formal sector employment for women within some
developing countries and, as such, are seen as increasingly important drivers of economic
empowerment for women, as well as increasing zone and enterprise competitiveness.
Jordanian SEZs are one such example of zone development which has focused on increasing
women’s access to employment opportunities. It is estimated that within the country’s six
SEZs, approximately 55% of the workforce are women. The government has incorporated a
number of initiatives such as meals and transportation for rural women working within the
economic zones, as well as outreach programmes targeting rural women, in explaining how
the zone programmes work and the potential benefits and opportunities available.
It has been observed that of the Jordanian women employed within the economic zones,
approximately 70% had no previous work experience, indicating the significant opportunity
of the zone programmes as entry points for women to engage with the formal employment
sector. This participation has been enabled by initiatives such as the ‘Satellite Factory
Programme’ which targets rural women and provides them with access to employment
opportunities in proximity to their villages and skills training to enable them to succeed. This
has helped to increase the number of domestic women employed within the economic zones
and address key barriers to entry for women such as limited work experience and low
mobility.
2.6.4 Wider Economic Reform and Experimentation

Globally, SEZs have been implemented as a tool to develop and diversify exports as they reduce
anti-export bias whilst keeping protective barriers intact. SEZs can assist in wider economic
policy reform by allowing countries to experiment with more liberal economic legislation,
regulations and policies for their economies. This includes providing incubators for new policy
in countries where reform is contentious, allowing countries to build the political capital
necessary for the implementation of nation-wide economic policy reform.
China’s SEZs are a particularly good example of where SEZs have been used to introduce and
test FDI, legal, land, labour and pricing policies before extending them to the rest of the country.
15
Box 4 - China and Economic Reform through SEZs1314
China is one of the most documented examples of successful economic reform in recent history.
Through the adoption of its Open Door policy in 1978, the country has managed to achieve rapid
economic growth and establish itself as the world’s second largest economy.
China’s SEZ programmes in particular have been noted as important drivers of this economic
growth and reform, allowing the Government to successfully test the market economy and acting
as demonstrator areas for the rest of country. The established SEZs have had notable success in
attracting new institutions, technology and management practices to China which has resulted in
significant contributions to national GDP, employment, exports and FDI in-flows.
The initial approach to SEZ development was incremental with four SEZs established in Shenzhen,
Zhuhai, Shantou and Xiamen. China used these zones to test market based economic policies and
reforms as well as experimental laws, regulations, land, tax, labour, finance, customs and
immigration policies prior to implementing them in the wider domestic economy.
Each of the SEZs comprised large areas which benefited from unique financial, investment and
trade conditions with the objective being to encourage innovative, pragmatic and open economic
policies which could potentially be rolled out to the rest of the country. These conditions were
found to have a dramatic economic effect on the performance of these zones with Shenzhen, for
example, achieving 58% annual growth in GDP, compared to a nationwide average of 10% between
1980 and 1984.
Following the success of the initial four SEZs, further programmes have been developed to open
up the economy further, including Economic and Technological Development Zones (ETDZ), High-
tech Industrial Development Zones (HIDZ), FTZs, EPZs amongst others.
It is noted that SEZs have made a significant contribution to China’s success by providing successful
testbeds for new market economies and institutions as well as serving as role models for
nationwide reform.
2.6.5 Foreign Currency Accumulation

Some SEZs are established to assist in foreign currency accumulation due to their ability to
produce goods and services which are sold within foreign markets and paid for in foreign
currency. Foreign currency accumulation can therefore be a key objective of SEZ development
where there is a need for countries to manage inflation levels and respond to balances of
payment crises.
13 Zeng, D (2011) China’s Special Economic Zones and Industrial Clusters: Success and Challenges.
14 Zeng, D (2015) Global Experiences with Special Economic Zones – Focus on China and Africa. World Bank.
16
A notable example is in the case of the Kaesong Industrial Complex in North Korea which was
developed on the basis of an agreement between Hyundai Asan, a South Korean company which
initiated the SEZ project, and the government of North Korea for a total payment of 942 million
USD. It is estimated that during its operation the SEZ also generated 20-34 million USD per
annum for the state of North Korea and provided a significant source of foreign currency
accumulation.15
2.6.6 Creating Clusters of Specialised Economic Activity

For many governments adopting SEZ strategies, a key consideration is how the country can
quickly develop clusters of industrial activity that will become specialised, internationally
differentiated and create high-value products and/or services. SEZ strategies and site selection
is sometimes targeted towards particular industry sectors where economic assessment suggests
that niche specialisms can be developed quickly. This can be linked to existing specialisation
within the country or to the availability of relevant feedstocks or raw materials inputs. In recent
strategies adopted by GCC member countries, for example, SEZ strategies have been developed
based in part on an attempt to create or deepen clusters of sector-specific activity. This is
considered to be a key determinant of both economic diversification (away from dependence on
hydrocarbons in this case) and improved international competitiveness.
2.6.7 Deepening and Extending Industry Value Chains

Linked to the above point, a primary objective underpinning many plans for SEZ development
is a sustained attempt to extend and deepen industry value chains. Again this is often pursued
where existing industrial activity provides a basis for moving further into downstream (and
sometimes upstream) value chain segments. Examples include several African and Asian
countries with significant activity in the clothing, textiles and apparel (CTA) sector. It is common
for these countries to have substantial activity and employment in one aspect of the value chain
which might include production of cotton feedstock, or alternatively garment assembly. In many
instances other aspects of the value chain including intermediate elements such as design or
spinning may be absent. The SEZ policy in these cases is often geared towards attracting
investors that can essentially ‘plug’ the value chain gap and create a deeper industry value chain
in-country. This is seen as facilitating greater resilience in the industrial system – it will become
reliant on activity outside of the country – as well as yielding higher values from production
processes.
Similar approaches are taken in countries with major commodities or mineral extraction
sectors. In this case SEZ policies are often targeted towards extending the process of minerals
15 Victor Cha, The Impossible State: North Korea: Past and Future (Harper Collins, 2013)
17
‘beneficiation’ again with a view to extending value chains and creating greater values in-
country from extraction and production processes.
Furthermore, some countries currently developing SEZ programmes are considering how the
zone format could be used to target investors and operators that can facilitate development of
more fully integrated production processes. Again this is often seen in the case of CTA and agro-
processing industries, but also with other manufacturing sub sectors. The aspiration here is to
attract anchor operators and additional components of supply chain networks and enable this
to become more integrated into the existing sectoral base. This is likely to generate higher values
from downstream integrated activity, to help embed the sector in-country and to build in
additional resilience related to economic or other structural shocks.
2.7 Incentive Schemes used in SEZs

The incentive schemes used in SEZs can broadly be separated into either fiscal or non-fiscal
incentives. Incentives are utilised to address pre-existing constraints or barriers to investment
which may otherwise deter investors from selecting the zone for investment. The different types
of incentive schemes are outlined in more detail below.
2.7.1 Fiscal and Financial Incentives

Fiscal incentives typically relate to forms of tax or duty reduction or exemption, ease of profit
repatriation and/or the provision of specific subsidies such as financial assistance for
infrastructure development or land purchases. Fiscal incentives are either standardised at the
country level or at the individual zone level. Almost exclusively, fiscal incentives will involve
lower import and export taxes and tariffs compared to the domestic economy.
Financial incentives typically consist of financial support to individual enterprises to encourage

them to locate within the SEZ. They may be used to overcome perceived disadvantages of the
location for investors and can often include investment in infrastructure to alleviate site
challenges or contributions to meet relocation, training or land costs.
Typical fiscal and non-fiscal incentives observed in global SEZ development include:
 Income tax allowances;

 Exemption of exported products from import duties;
 Exemption of exported products from indirect taxes;
 Exemption of imported goods used in production processes from import duties;
 Exemption of waste generated by the production process from export duties;
 Exemption of goods stored in the SEZ from duties and indirect taxes; and
 Exemptions from other non-specific tax subsidies, including taxes imposed by national,
regional and local authorities.
18
2.7.2 Non-fiscal Incentives

Since most countries with SEZs offer some form of fiscal incentives, competition has increased
to attract investment as the number of zones worldwide has grown. Non-fiscal incentives,
related to the ease of operations within zones are therefore also key considerations for investors
when choosing where to locate.
Typical non-fiscal incentives can include:
 Single-window fast track clearances;

 Simplified export-import procedures and customs clearances;
 Ease of restriction on foreign workers;
 Repatriation of profits;
 100% foreign ownership; and
 Allowing sale of goods to the domestic tariff area.
Non-fiscal incentives which facilitate the ease of doing business within SEZs are now often cited
as more important to investors than the implementation of fiscal benefits, particularly with
regards to the provision of a genuine ‘one-stop-shop’ which can expedite the acquisition of
licenses and fast-track clearance processes. 16
Box 5 - Expedition of Permits and Clearances
Philippines
The Philippines Export Processing Zone Authority (PEZA) has signed a Memorandum of
Agreement with the Department of Environment and Natural Resources, which has eased
environmental clearances. The authority also provided a 24 hour service to companies located
within the zones and can assist with processing visas for foreign nationals. In particular, foreign
nationals within a PEZA registered enterprise are allocated a special non-immigrant visa which
allows multiple entries.
16 A. Mukherjee et al. (2016) Special Economic Zones in India. ICRIER, India.
19
Box 6 - Flexibility of Labour Laws17 18

Republic of Korea
Certain provisions of the national Labour Standard Act are not applicable to the Free Economic
Zones (FEZs) and therefore enterprises within the FEZs are not obliged to meet quotas for special
categories of workers such as elderly people. There is also greater flexibility to hire temporary
(outsourced) workers for longer periods.
Bangladesh
The labour laws within the Bangladesh EPZs are regulated by special EPZ labour laws; the EPZ
Workers Association and Industrial Relations Act 2010 which specifies the types of workers
welfare associations which are allowed within EPZ areas.
China
Enterprises within Chinese SEZs can enter into enforceable labour contracts with specific term
limits as well as having the right to dismiss unqualified or underperforming employees as well as
adjusting wage and compensation rates to reflect the market situation.
2.7.3 Lessons Learnt in Incentive Schemes

Whilst incentives are a key component of the SEZ model in increasing the attractiveness of a
location for investment, there are many examples of unsustainable models of incentive schemes
being deployed in a globally competitive environment. Given the exponential growth in zone
programmes globally in recent years, fiscal incentives are now an ineffective tool for
differentiation between SEZs. Policy makers therefore need to establish an incentive framework
that does not rely on the assumption that fiscal incentives will be the key differentiator between
their zone and competitors. 19
It has been observed that whilst conditions such as high quality infrastructure provision and
effective customs environments are strongly correlated with successful SEZ programme
outcomes measured by exports, investment and employment. In contrast, fiscal and financial
incentives were found to generally not be correlated with SEZ outcomes 20 , with greater
importance afforded to the wider investment climate.
The ‘ease of doing business’ is one of the key components of a successful investment climate and
this can be facilitated through the effective deployment of non-fiscal incentives and their ability
to streamline administrative and regulatory processes which undermine the competitiveness of
17 Korean Free Economic Zones, (2015) http://www.fez.go.kr/global/en/why/incentive.do#tab3.

18ProLogis, (2008) Research Bulletin: China’s Special Economic Zones and national Industrial Parks – Door Openers to
Economic Reform.
19 Farole, T and Akinci, A (2011) Special Economic Zones: Progress, Emerging Challenges and Future Directions.
20 Farole, T (2011) IBID.
20
business environments for investment. A typical vehicle for delivering these services is through
the provision of a ‘one-stop-shop’ which provides the link between investment and government.
Incentives and Free Trade Agreements / Customs Unions
When developing incentive regimes there may also be conflicts between free trade agreements
or customs unions and fiscal incentives which are still subject to regional trade framework
agreements. This can lead to overlapping trade environments and increased complexity which
can erode the attractiveness of the investment climate.
Conflicts have also been identified with regards to the creation of an uneven investment
landscape if investors are able to leverage incentives on offer within an SEZ whilst
simultaneously ‘exporting’ their products and services to the Regional Trade Agreement (RTA)
under the preferential market access terms of the specified trade area. 21 This can lead to
conflicts between RTA producers and SEZ producers.
Potential conflicts may also arise between SEZ programmes and RTAs with regards to ‘trade
triangulation’. This occurs where goods produced outside of the SEZ host country are imported
into the SEZ under a preferential duty scheme and are then exported from the SEZ into the RTA
customs territory free of duties and taxes. This can lead to foreign companies exploiting the SEZ
and RTA frameworks by importing goods and adding minimal local value added.
Economic Effectiveness of Incentives
It has been noted that in some circumstances, such as within the African context, incentives have
typically been deployed to compensate for an overall lack of competitiveness in the form of
extended tax holidays, subsidised real estate and utilities and direct financial incentives to
individual investors to attract investment.22 This can lead to a ‘race to the bottom’ and result in
SEZs becoming tax havens for companies which may have invested in the host country in the
absence of a zone programme. Critics of SEZs states that they can often result in resource
distortion and are thus a sub-optimal strategy for development compared to country wide or
regional economic reform programmes. 23 The deployment of incentives should be carefully
considered from the outset to ensure that they incentivise investment at a reduced cost when
compared to the deployment of alternative incentives and achieve policy objectives with a
minimum leakage of tax revenue.24
21 DLA Piper, (2017) Special Economic Zones Best Practice Guide and Case Study Booklet, manuscript.
22 ADBG (2015) Special Economic Zones in Fragile Situations: A Useful Policy Tool?
23 Engman, M, O, Onodera and E, Pinali (2007) Export Processing Zones: Past and Future Role in Trade and Development.
24 Tuomi, K (2012) Review of Investment Incentives: Best Practice in Attracting Investment. ICG, London.
21
Policy makers need to carefully consider the balance of their incentive schemes, aiming where
possible, to develop incentives which are focused on the sectors and strategies which underpin
the zone programme and do not result in long term fiscal or financial commitments.
22
3 Learning Lessons from Global SEZ Experience

3.1 Introduction
It was estimated that there were around 3,500 special economic zones worldwide by the mid-
2000s. Although many of these are single factory zones, it shows a rapid expansion since the
mid-1980s when it was estimated that there were just over 170.
The predominant typology has changed from traditional EPZs to more mixed special economic
zones with multiuse developments incorporating industrial, commercial, residential and even
tourism activities. Some are moving to highly specialised developments focusing on high-end
services such as ICT and biotech. Another trend is to see the increasing importance of private
sector involvement and a move away from purely publically funded schemes.
Critical success factors for SEZs include their ability to attract investment and create jobs, their
ability to deliver structural economic transformation and to catalyse economic reforms; and
their impact on social and environmental objectives.
The ability to attract investment is highlighted by fDi Magazine’s global ranking of economic
zones which awarded Dubai Multi Commodities Centre (DMCC) the title of Global Free Zone of
the Year 2016. One of the judges’ reasons cited was the bespoke nature of the developments
within the Free Zone which are custom made for investing companies. In addition, the zone has
digitised service provision allowing investors to log on to any device anywhere across the globe
to access its services. Setting up a business in the zone has also been streamlined and can now
be undertaken in 15 days whilst business renewals can be undertaken in just four days. Again,
these processes are digitised allowing investors to access the relevant paperwork in hours.25
3.2 Emerging Global Trends

In the last five decades, more than two-thirds of all countries around the world have developed
SEZs and, as noted above, over 3,500 SEZs are now in operation globally. Collectively, these SEZs
account for over 850 billion USD in international exports and provide direct employment for
more than 66 million people worldwide. SEZs have been implemented both in emerging market
economies, including Brazil, China, India, Russia and South Africa (it is less developed countries
that are normally associated with SEZs), as well as in advanced economies, such as Canada,
France, Singapore, the UK and the US26.
In countries which initially developed SEZ formats for industrial growth, from the 1950s to the
1970s, such as India, Indonesia, Ireland, and the Philippines, the ongoing focus has tended to be
25 FdI Magazine, (2016) Global Free Zones of the Year 2016.

26 DLA Piper, (2017) Special Economic Zones Best Practice Guide and Case Study Booklet, manuscript.
23
on the continuation or closure of existing SEZs in the context of national economic policy
reforms. In contrast, a number of countries which implemented SEZs more recently from the
1980s and into the 2000s, such as Iran, Kazakhstan, Nigeria, Poland and the UAE, have
increasingly focused on how to enhance their zones' competitiveness in the context of the
thousands of other zones now in operation. One of the most pressing challenges for SEZs globally
therefore, and particularly new ones coming on-stream now, is how to assert a unique
investment proposition that maximises competitiveness and goes beyond standard format
infrastructure provision or increasingly common forms of fiscal incentivisation.
There has also been an emerging trend of cooperation between countries in developing SEZs,
the most notable example being state sponsored economic cooperation between a number of
African countries and China. This cooperation emerged in 2000 following the 1st Ministerial
Conference of the Forum on China-Africa Cooperation (FOCAC) in which China pledged to
facilitate best practice sharing of SEZ development with African countries. 27 In 2015 it was
recorded that SEZs had been developed in six African countries; Algeria, Egypt, Ethiopia,
Mauritius, Nigeria and Zambia.28 These zones are seen as an important vehicle for the relocation
of Chinese manufacturing activity away from mainland China to Africa and different forms of
financial support are available from the China-Africa Development Fund for investors. Further
interest and investment in Chinese-led SEZ development is likely to grow following adoption of
the ‘One Belt, One Road’ policy in China and its emphasis on cross-border economic cooperation
zones.
A number of key trends, in both industrial and policy terms, are now impacting upon how
countries determine their international trade and FDI polices and these are also increasingly
influencing the development plans for SEZs across many regions. Global industrial trends
include the following29:
 Expanded global production networks and increasing utilisation of systems of niche

international suppliers particularly in higher-value and more specialised manufactured
goods;
 Increasing importance of supply chain management (logistics costs being increasing at
a higher rate than manufacturing costs, particularly in regions poorly served by
infrastructure such as Africa);
27UNDP, (2015) If Africa Builds Nests, Will the Birds Come? Comparative Study on Special Economic Zones in African and
China.
28 Xiaoyang, T (2015) How do Chinese ‘Special Economic Zones’ Support Economic Transformation in Africa?
29 Global SEZ Team - World Bank Group SEZs as an Institutional Micro Climate (presentation)
http://www.tepav.org.tr/upload/files/haber/1305893756-1.ETIENNE_R._KECHICHIAN___SEZs_as_an_Institutional_Micro.pdf
24
 Contract manufacturing & outsourcing, as well as more sophisticated segmentation of

production processes across different suppliers, especially in sectors such as Textiles
and Apparel;
 Increasing importance of service industries in many countries’ national economic
diversification programmes and a need to balance service sector growth with evolving
manufacturing specialisation;
 Decline of pure export platforms that involve limited value addition;
 Competitive advantage driven by sales, distribution & customer relationships rather
than low costs of production alone;
 Co-location of sales support with manufacturing to attract integrated manufacturing
clusters; and
 Compliance and CSR polices, environmental regulation and influence of more ‘ethical’
consumption patterns.
In addition, there are a number of policy trends that are also influencing SEZ programmes and
delivery approaches across the globe and these include:
 Global trade integration through WTO;

 Deepening of regional trade blocs and customs unions, particularly in Africa and Asia;
 Global and regional push for harmonization of tax incentives, partly to avoid problems
of ‘tax inversion’;
 Push for harmonization of investment rules;
 Climate change agenda – this includes countries’ evolving polices to develop greater
industrial resilience, as well as investors’ desire to locate production processes in places
that will mitigate the risk of climate change impacts adversely affecting production and
increasing operational costs;
 Environmental and social agenda, as well as ethical and fair trade approaches;
 Liberalization of telecommunications and information technology sectors;
 Crack-down on off-shore tax havens and tax inversion; and
 Trade and supply chain security in the face of political instability, conflict and climate
change related shocks.
Other recent research has suggested that the popularity of SEZs had previously been based in
part on the simplicity and effectiveness of arrangements around tax exemptions for
25
businesses30. When looking for a site for a new project, investors begin by conducting a search
across numerous countries and hundreds of sites with a view to specifying the optimal place for
doing business. Corporate advisers Ernst & Young, in discussions with investors, have been
observing a noticeable trend that the tax exemption within the SEZs is becoming less important
in the process of selecting sites, particularly in the developed-world context. This is because
given the high investment costs, investment projects lasting several years and market pressure
reducing profitability in many industries, the effective time for taking advantage of the
exemption sometimes becomes shortened to 3 years. Therefore other aspects of the operating
environment, including provision of infrastructure, skilled labour and effective routes to market
become more important.
Another major trend in global development of SEZs focusses primarily on their environmental
and sustainability credentials and this has led to the increasing emergence of the ‘Eco-Industrial
Park’ as an SEZ format. It is suggested that in the next era of industrial zone development,
sustainability and eco-industrial growth will play paramount roles in minimizing environmental
and social risks while generating profits for firms.31 This combination will help governments
scale-up and leverage sustainable infrastructure to fulfil their commitments to meet the UN
Sustainable Development Goals32 and other international climate actions.
There are tangible drivers behind this changing paradigm of industrial zones including a visible
shift in the procurement preferences of the leading global buyers whom the zone enterprises
primarily cater to, especially in the light manufacturing sector. Multinational buyers are showing
strong preferences for greener and more sustainable supply chain management that compels
suppliers to produce in an environmentally compliant, resource-efficient, safe, and socially
responsible manner. The growing availability of ‘reduce-reuse-recycle’ technology for industrial
waste has also heightened the pressure on industries to improve their management of waste
and resources and look for mechanisms to grow and operate in a symbiotic fashion.
The efficiency and strategic agglomeration of firms will enable companies to take advantage of
joint infrastructure, efficient management of operating risks, and improved resilience to
climactic conditions.31 The trend toward EIPs has been growing organically in most developing
countries. Although consensus is absent on what definitively constitutes an EIP, World Bank
preliminary research has identified over 254 operating or planned zones or parks that would
likely fit a stringent definition. The bulk of these EIPs employs some level of ecological and
30 Ernst & Young (2011) Special Economic Zones beyond 2020 Analysis of current activities and an outlook for their existence
31Kechichian, E. and M.H. Jeong, (2016) Mainstreaming Eco-Industrial Parks: Conclusions from the Eco-Industrial Park 2015
Event in Seoul, Washington D.C.: World Bank
32 http://www.un.org/sustainabledevelopment/sustainable-development-goals/
26
sustainable practices, but further research is needed to find out what practices are actually
employed and how well they work in particular circumstances.
3.3 Development of Cross Country and Tripartite SEZs

As the number of SEZs increases globally and they are increasingly seen as a policy tool to attract
investment, it will become increasingly important for zones and countries to look beyond
administrative borders and develop integrated approaches to SEZ development; particularly
with regards to legal and regulatory frameworks such as export policies and fiscal incentives. It
is suggested that the rapid expansion of regional trade agreements (RTAs) offers the potential
for SEZs to focus on logistics or cross-border trade and to facilitate regional synergies, although
it is acknowledged that to date there have been limited efforts by SEZ programmes to create
these synergies. 33
Whilst examples to date concerning cross country SEZ programmes are limited there are a few
notable example of previous and future programmes which have focused on border trade. These
are discussed in the boxes below.
Box 7 - Central America Maquiladoras Programme 34 35
Maquiladoras are companies which are wholly or predominantly owned by foreigners. The role
of these companies is to assemble products for export to US or other foreign markets.
Macquiladoras are subject to special customs treatment, less expensive labour costs and lower
operating expenses. Once a Maquiladora Permit has been obtained from the relevant
government, the Maquiladora has the right to import raw materials duty free into the country of
origin for manufacturing, assembly, repair or other processing.
This programme first adopted in the Domincan Republic, Mexico and Honduras in the 1960s and
was designed to take advantage of cheap labour costs within the countries and to attract
manufacturing industries who wished to export to US markets.
In Mexico a Border Industrialisation Programme was adopted in 1965 to increase employment
opportunities for Mexican workers returning from US following the demise of the Bracero
Programme. It is estimated that there are now over 2,800 Maquiladora companies operating in
Mexico, of which over 90% are located within the border zone and account for over 55% of
Mexico’s exports and employing over 1.1 million people.
33 Koyama, N (2011) SEZs in the Context of Regional Integration: Creating Synergies for Trade and Investment.
34 http://teamnafta.com/manufacturing-resources-pages/2016/4/18/nafta-and-the-maquiladora-program
35 Farole, T and Akinci, G (2011) Special Economic Zones: Progress, Emerging Challenges and Future Directions.
27
Box 8 - Thailand’s SEZ Programme
Thailand approved its SEZ programme in 2014 with the primary aim of driving regional economic
growth and targeting cross border trade. At present it is estimated that cross border trade
accounts for approximately 10% of total trade volumes within Thailand, but the SEZ programme
aims to increase this to 50% once fully deployed.
The programme aims to target investors interested in accessing labour and importing goods,
including raw materials and parts from countries neighbouring Thailand. The zones will aim to
develop supply chains and increase the domestic consumer market along Thailand’s border.
Target industries and activities include agriculture, manufacturing of textiles, ceramics, furniture,
gems, medical equipment and electronics as well as logistics, pharmaceuticals and tourism.
Box 9 - Kaesong SEZ Programme
SEZ programmes can also be used to promote reform and encourage diplomatic relations as in
the case of the Kaesong SEZ which was established by North and South Korea. Formed in 2003,
the Kaesong Industrial Complex, when it was operational, employed approximately 47,000 North
Korean workers and 121 South Korean enterprises generating a total of $300 million in output.
The initial concept of the SEZ was to allow South Korean firms to utilise cheap North Korean
labour within manufacturing activities. The secondary benefit was to promote liberalisation and
economic reform within North Korea as well as provide the North Korean economy with much
needed foreign currency accumulation. It is estimated that the North Korean government
accumulated approximately $2 million per month from workers fees, land lease fees and other
payments. In addition, the government received a $12 million lease payment from the Hyundai
Asan Company who developed and operated the zone.
Key perceived factors of success included an increase in North and South Korean political
cooperation and acceleration of economic reform within North Korea as well as benefiting the
South Korean economy. However, overall economic performance has been low primarily due to
relatively small numbers of SMEs located to the zone and decreases in productivity. In addition,
there has been little evidence that the North Korean economy has improved since the creation of
the zone (Nam, 2012)
Unfortunately due to some political developments within the region, the Kaesong Industrial
Complex is currently closed demonstrating the fragility of cross border zones, particularly within
geographies of conflict.
28
Box 10: Khorgos – Eastern Gate Special Economic Zones
The Khorgos Eastern Gate SEZ sits on the border of Kazakhstan and China and there is a vision to
create a 5,750 hectares trade and logistics zone which will capitalise on the zone’s geographic
location as a hub between China, South Asia, the Middle East and Europe. The zone is a key
element of the ‘New Silk Road’ and ‘One Belt, One Road’ programme which aims to expand links
between Asia, Africa and Europe and to increase trade. In 2017, an agreement was signed
between COSCO Shipping Corporation and Lianyungang port for the joint development of the SEZ.
The vision is to create a total of 50,000 jobs by 2020 and to create a residential area for 110,000
people. The zone will include a new dry port (including a container terminal), a logistics zone and
an industrial zone with ambitions to create a ‘one stop shop’ where products can be
manufactured, warehoused, imported, exported and transhipped.
The zone will focus on warehousing and transportation activities, food, leather, textiles, metals
and mineral products manufacturing as well as manufacturing of machinery and will boost
Kazakhstan’s export volumes.
3.4 Key Challenges to SEZ Success

The implementation of SEZs globally has been uneven, with SEZ development in some countries
drawing criticism with regards to negative social, economic and environmental impacts. This
includes impacts such as:
 Discrimination of women – including lower wage levels, lack of training or skill

upgrading and use of trainees to lower wage costs;
 Suppression of labour standards and core labour rights including trade unionisation;
 Poor employment conditions – including workings hours and health and safety policies;
 Lax environmental standards – including the relaxation of standards and regulations
within SEZs36; and
 Creation of ‘enclaves’ at the expense of countrywide policy reform.
These key challenges and points of critique with regards to SEZ development globally are
explored in further detail below.
3.4.1 Labour Rights, Wages and Working Conditions

A key criticism of SEZ development, particularly within developing countries, has been with
regards to labour rights and working conditions. It has been observed that SEZ laws often
36Akinci and Crittle (2008) Special Economic Zones: Performance, Lessons Learned and Implications for Zone Development.
FIAS, USA.
29
include anti-union and labour-suppressing aspects which have been criticised for their negative
impacts on SEZ workforces. Significant issues have been identified with regards to:
 Restrictions on the freedom of association and collective bargaining;

 Bans on the right to strike; and
 Non-observance of national labour legislation within zones.37
Whilst progress has been made in recent years through the efforts of trade unions and non-
governmental organisations (NGOs) as well as improved enforcement by the International
Labour Organisation (ILO) there are still discrepancies in the implementation of policies and
enforcement practices.
Women’s rights have also previously been a subject of criticism within SEZ development due to
practices of gender discrimination and gender related barriers in zones such as equal pay,
pregnancy and childcare, suitable working hours and forced dismissals. In some cases with
regards to the SEZ development, labour rights and working conditions may be ignored.
It is noted however that when considered in the context of global SEZ development, these issues
are most prevalent within a small number of zones, and in particular are almost wholly
associated with older, government run SEZ programmes focusing on lower value products and
outputs.
37 Ibid
30
Box 11 - Workers Rights in India’s SEZs38 39
Within India, studies have found that whilst in practice general labour laws are upheld through
the Special Economic Zones Act 2005, in practice labour laws and welfare measures are virtually
non-existent. The ability of workers to organise trade unions and undertake strikes is
undermined by the labelling of economic activity within these zones as a ‘public utility service’
and thus strikes constitute an illegal activity. This has led to trade union activity being widely
discouraged within India’s SEZs and the adoption of poor wage levels, below minimum wage in
many cases, and long working hours adopted as typical practices.
It is recorded that within Indian SEZs there is a large proportion of workers operating under
casual or informal contracts and as such can be hired and fired frequently. This has led to high
labour turnover, absenteeism, stress, fatigue, low productivity and labour unrest. There are also
recorded observations of wage malpractice with only permanent employees securing minimum
wage salaries whilst contract and informal workers are in the form of daily, monthly or piece rate
payments. This has also led to unregulated working hours and excessive overtime practices are
observed given the unsure nature of the contract employment and fear from workers of losing
their jobs if they are unable to meet production targets. A report within the Falta SEZ found that
workers often worked 12 hour days but their employment cards were only punched for 8 hours.
Health and safety practices within many Indian SEZs were also found to be inadequate, with
dehydration, heat stroke, heat rashes and gastrointestinal common medical issues, particularly
during the summer months where high productions targets make it difficult for workers to take
on adequate quantities of fluids and food.
3.4.2 Environmental Impacts

Criticisms of SEZ development has historically included environmental concerns, with the
experiences of the Mexican maquiladora plants, being the most notorious for environmental
degradation. In the Mexican experiences, a combination of weak monitoring and enforcement
by local and national environmental authorities combined with the rapid growth of maquiladora
plants beyond the capacity of waste treatment infrastructure, resulting in significant adverse
environmental impacts on local communities outside the SEZs. It was also observed that there
was a perception that environmental laws could be weakened within the maquilas because of
their priority sector status.40
It is acknowledged however that as SEZ development has moved from single factory EPZ
programmes such as within Mexico and Mauritius towards models of industrial park
development it has become easier for developers to provide more effective facilities and utilities
38 Mansingh, P, Suneetha, E and Sreejesh, N (2012) Trade Unions and Special Economic Zones in India. ILO.
39 Parwez, S (2014) Modified Labor Welfare Measures for Special Economic Zones and Implications.
40 Williams (1995) The Maquiladora Industry and Environmental Degradation in the United States–Mexico Borderlands.
31
for occupiers and for governments to implement more stringent environmental monitoring and
enforcement practices. In addition, investors have begun to require greater environmental
management within zone development.
3.4.3 Economic Reform

Employment generation is often a key driver of SEZ implementation, however some critics have
argued that where SEZs are developed as ‘pressure values’ against high rates of unemployment,
they reduce the incentive for countrywide economic reform and instead divert reform energies
potentially creating isolated free market enclaves. SEZs need to be grounded within wider
economic development strategies, within which SEZs are a key element in order to successfully
stimulate wider economic performance, linkages with domestic economy and economic reform.
SEZ programmes result in markedly different treatment of enterprises within and outside of
economic zones and this can lead to imbalances where domestic firms are not protected from
the incentives afforded to firms within SEZs. Typically these advantages are addressed through
restrictions such as limiting exports from SEZ producers to the domestic economy.
Where enclave markets are created it is noted that the long-term effects of the SEZs on the
domestic economy are significantly reduced, and the much vaunted backward and forward
linkages 41 and technology transfer spill overs are minimal. In particular it is observed that
where SEZs are focused on low-skilled, assembly type operations, these activities are not
typically conducive to technology transfer. In addition, where higher value added operations
such as advanced production activities, software or business services are clustered, enclaves are
often formed de-linking the zones from the rest of the economy with the exception of the labour
force it directly services.42
A key example of this was the establishment of the first industrial free zone in the Dominican
Republic. It was recorded that of the 500 businesses within the zone, only a very small
percentage of material inputs from domestic customs areas demonstrating the difficulties in
establishing backward linkages between the zone and the local economy.43
41Backward linkages are defined as linkages which create demand for intermediate inputs from the domestic economy, i.e.
where enterprises within the domestic economy supply MNCs within SEZs. Forward linkages are established where a supply
of intermediate inputs for domestic enterprise are created, i.e. firms within an SEZ provide inputs for downstream MNCs
within the domestic economy.
42 Milbery, W (2007) Export Processing Zones, Industrial Upgrading and Economic Development: A Survey.
43 FIAS, (2008) Special Economic Zones: Performance, Lessons Learned and Implications for Zone Development.
32
Box 12 - Backward and Forward Linkages within Dominican Republic SEZs 44 45
A number of studies have found that the Dominican Republic has a poor record with regards to
fostering backward and forward linkages with the domestic economy. It is observed that there has
been an historic reliance on imported inputs, which has increased in recent years as the Dominican
Republic has joined more sophisticated global value chains and reduced its reliance on traditional
garment production which formed the basis for many of the original EPZs.
This is primarily a result of more production stages of the value chain being conducted within the
SEZs, the result being that an increasing proportion of inputs are imported rather than being
sourced domestically. An economic census conducted by the Central Bank in 2014 found that there
were also significant variations between the sourcing of inputs between different industries. It was
recorded that traditional zone enterprises such as textiles and clothing and footwear sourced
approximately 28% and 22% of their inputs domestically. In contrast, industries with greater links
to global value supply chains such as medical and surgical equipment and electrical equipment
source approximately 3% of inputs domestically. It was found that the majority (87%) of SEZ
companies also import their machinery from outside the domestic economy.
Three primary reasons have been given for the Dominican Republic’s performance in fostering
backward linkages (Willmore, 1995):
1. Until 1993 each sale from the customs territory to an EPZ company required an export
license – this discouraged domestic firms from creating supply chain linkages with EPZ
firms;
2. Absence of effective legislation to facilitate the ‘temporary’ import of goods which are
incorporated into exports. This made products within the customs territory uncompetitive
in the EPZ markets; and
3. Tariff and non-tariff barriers to imports were high so manufacturers producing for the
small domestic market would not be expected to be competitive. In addition local products
were uncompetitive in price and quality compared to imported goods.
Efforts to foster stronger development of backward linkages now include initiatives from the
national commission for SEZs (CNZF) such as the organisation of match-making rounds in 2015
which included 60 business to business meetings. CNZF is also training domestic producers on the
quality certifications required to become suppliers to SEZ firms.
44World Bank, (2016) Special Economic Zones in the Dominican Republic: Policy Considerations for a more Competitive and
Inclusive Sector.
45Willmore, L (1995) Export Processing Zones in the Dominican Republic: A Comment on Kaplinsky. World Development,
Great Britain.
33
4 Trends in SEZs in OIC Member Countries

This section provides a broad overview of SEZ performance and experiences within OIC Member
Countries. This analysis has been informed by a broad desk-top study of the nature and
performance of SEZs across OIC countries including some comparative benchmarking analysis
of OIC SEZs. This section also draws upon experiences of SEZ development and performance
within OIC Member Countries to demonstrate particular achievements and challenges and
provide discussion of particular major failures in terms of performance.
4.1 Profiling SEZs within OIC Member Countries

Previous research has been used to identify46 those OIC Member Countries which have either
established SEZ development or are pursuing SEZ development. In addition, further research
has been undertaken to update and validate the number of OIC Member Countries with SEZ
programmes. This analysis is outlined below in Table 4-1 and demonstrates that the following
countries have established or are pursuing SEZ programmes.
Table 4-1 - OIC Member Countries with SEZ Development
OIC Arab Region OIC Africa Region OIC Asia Region
Algeria Bangladesh Albania
Bahrain Benin Indonesia
Egypt Djibouti Iran
Jordan Gabon Kazakhstan
Kuwait Gambia Malaysia
Lebanon Mozambique Pakistan
Libya Nigeria Turkey
Morocco Senegal Uzbekistan
Oman Sudan
Qatar Togo
Saudi Arabia Uganda
Tunisia
United Arab Emirates
Yemen
Source: BuroHappold Analysis 2017. FIAS (2008)
46 World Bank (2008) Special Economic Zone: Performance, Lessons Learned and Implications for Zone Development.
34
4.1.1 Geographical Distribution

In total it is estimated that there are approximately 242 SEZs operating within 33 OIC Member
Countries. This is shown below in Figure 1. It can be seen that SEZ development has been a key
focus within the Middle East with the UAE (20%), Saudi Arabia (11%), Iran (9%), Jordan (6%)
and Oman (4%) accounting for approximately half of all SEZs within OIC Member Countries.
Figure 1 – Total Number of SEZs by OIC Member State
Uzbekistan 3
United Arab Emirates 49
Uganda 1
Turkey 18
Tunisia 2
Togo 5
Sudan 3
Saudi Arabia 27
Senegal 1
Qatar 4
Pakistan 9
Oman 11
Nigeria 13
Mozambique 5
Morocco 3
Malaysia 5
Libya 1
Lebanon 2
Kazakhstan 5
Kuwait 2
Jordan 15
Iran 21
Indonesia 5
Gambia 1
Gabon 1
Egypt 9
Djibouti 1
Benin 1
Bangladesh 8
Bahrain 6
Algeria 1
Albania 3
0 10 20 30 40 50 60
Source: BuroHappold Analysis 2017. Note: OIC Member Countries with no SEZs recorded are excluded from this figure.
35
4.1.2 SEZ Typologies

Comparative analysis has also been undertaken with regard to SEZ typology. The most common
typology recorded within OIC Member Countries, as shown in Figure 2, are FTZs, following by
EPZs, Hybrid EPZs and SEZs.
Drawing on the analysis from Figure 3 it can be seen that there is a clear focus on FTZs within
the United Arab Emirates and Turkey whilst the distribution of EPZs is more even across the OIC
Member Countries. Iran in particular has undergone a significant programme of SEZ
development within recent years accounting for just under half of all SEZs recorded within OIC
Member Countries.
Figure 2 – Total SEZs by Typology within OIC Member Countries
100
90
80
70
Total Number
60
50
40
30
20
10
0
EPZ EZ Financial Freeport FTZ Hybrid IT / SEZ Tourism
Services EPZ Science Zone
Zone Park
Figure 3 indicates that across the OIC Member Countries, approximately 36% of SEZs are FTZs,
whilst approximately 25% are classified as EPZs. Hybrid EPZs and SEZs also account for
approximately 15% and 14% of zones within OIC Member Countries respectively.
36
Yemen
Uzbekistan
United Arab Emirates
Uganda
Tourism Zone
Turkey
Tunisia
Togo
SEZ
Sudan
Saudi Arabia
IT / Science Park
Senegal
Qatar
Pakistan
Oman
Nigeria
Hybrid EPZ
Mozambique
Morocco
Malaysia
37
FTZ
Libya
Lebanon
Freeport
Kazakhstan
Kuwait
Figure 3 – SEZ Typologies by OIC Member Countries
Jordan
Financial Services Zone

Iran
Indonesia
Gambia
Gabon
Egypt
Djibouti
EZ

Benin
EPZ
Bangladesh
Bahrain
Algeria
60 Albania
50
40
30
20
10
0
Figure 3 above indicates that the majority of FTZs within OIC Member Countries are contained
within the United Arab Emirates (31% of total FTZs) and Turkey (21% of total FTZs). Egypt also
accounts for approximately 8% of FTZs within OIC Member Countries illustrating that FTZs are
most commonly located within the MENA region.
In contrast it can be seen that EPZs are most commonly located within Asia, with Bangladesh
(14% of EPZs), Pakistan (14% of EPZs) and Indonesia (9% of EPZs) accounting for over one
third of total EPZs within OIC Member Countries. EPZs are also observed to be the most common
form of zone within Sub-Saharan Africa (SSA) with Togo (7% of EPZs), Mozambique (7% of
EPZs) and Nigeria (5% of EPZs) accounting for approximately 19% of EPZs within OIC Member
Countries.
Hybrid EPZs are observed to be almost wholly located within the MENA region with Saudi Arabia
(49% of Hybrid EPZs) and Oman (20% of Hybrid EPZs) accounting for over two thirds of Hybrid
EPZs within this region.
4.2 SEZ Benchmarking within OIC Member Countries

As outlined above there are a large number of SEZs within OIC Member Countries. Given there
is insufficient data readily available to enable effective benchmarking across all OIC SEZs, we
have selected a total of 23 zones to analyse in more detail and to draw insights and lessons from,
These zone are listed below in Table 4-2 and are representative of SEZs from within the Asia,
Arab and African OIC regions. These case studies have been selected based on the quality of
information available for comparative and competitive benchmarking.
38
Table 4-2 - Zones Selected for Comparative Benchmarking within OIC Member Countries
Year of
No. Zone Country Sectoral Focus
Establishment
Bahrain
Manufacturing and international service
1 International Bahrain 2010
operations.
Investment Park
North Sitra Re-export activities including machinery
2 Bahrain N/A
Industrial Estate and equipment
Food processing, chemicals and
Alexandria Public petrochemicals, fertilizers, petroleum
3 Egypt 1973
Free Trade Zone services, engineering and electronics
and medical equipment manufacturing
Nasr City Public Pharmaceuticals, medical equipment,
4 Egypt 1973
Free Zone engineering and electronics
Ship maintenance industry, maritime
Suez Trade Free services companies, petroleum business,
5 Egypt 1975
Zone metal products
processors/manufacturers and weaving
Rubber, oil palm and petrochemical
6 Tanjung Api-Api Indonesia 2014
activities
Fish processing, shipyard industries,
coconut processing, food industry, metal
7 Bitung Indonesia 2014
industry, distribution and logistics
activities
Oil palm industry including industrial,
8 MBTK Indonesia 2014 logistics, processing and export
activities
Tourism, heavy industries, light
industries, services, commercial,
9 Aqaba Free Zone Jordan 2001 logistics/warehousing, transportation,
education, health & environment
activities
Kings Hussein Mixed-use technology sector and front
10 Jordan 2010
Business Park and middle office activities
Ma’an Light, medium and heavy industries,
11 Development Jordan 2008 ceramics, plastics, electrical appliances,
Area (MDA) renewable energy and tourism activities
Electronics and electrics, healthcare
Bayan Lepas Free instrument manufacturing,
12 Malaysia 1972
Industrial Zone Petrochemicals and shared business
services and outsourcing activities
Port Klang Free Manufacturing, trading and logistics
13 Malaysia Unknown
Zone activities clustered around regional
39
Year of
No. Zone Country Sectoral Focus
Establishment
distribution centres and international
procurement centres
Electrical and electronics, petrochemical
and oil and gas, food and agro-
14 Iskandar Malaysia 2006
processing, logistics and tourism
activities
Tanger Med Free Automotive and aerospace industry and
15 Morocco 2003
Trade Zone logistics and distribution activities
Kenitra
Automobile-related activities and other
Automotive Free
16 Morocco Unknown export activities, industrial logistics and
Zone (Atlantic
shared support services
Free Zone)
17 MidParc Morocco 2011 Aerospace and electronic sectors
Construction materials and ceramics,
Ogun Guandong ironware, furniture, wood processing,
18 Nigeria 2008
Free Trade Zone medicine, computers and lighting
manufacturing activities
Transportation equipment, textile and
light industries, home appliances and
19 Lekki Free Zone Nigeria 2008
telecommunication manufacturing
activities
Manufacturing, logistics and
20 Mersin Free Zone Turkey 1986 warehousing with a focus on industrial
and agricultural products and activities
Tourism, maritime manufacturing,
Antalya Free machinery manufacturing and repair,
21 Turkey 1985
Zone medicine, agriculture, textiles and
electronics activities
Warehousing, medical
supply/instrumentation, machine tools,
Jebel Ali Free
22 UAE 1985 construction, food processing,
Zone
electronics, chemicals, stationery,
fashion industries
Storage, manufacturing, packaging,
Ras Al Khaimah processing and assembly activities,
23 UAE 2000
Free Trade Zone consulting and services activities and
trade activities
Source: BuroHappold Analysis 2017. Note: where information is not available N/A has been used.
40
This section provides a broad overview of the spatial characteristics of these SEZs as well as
some analysis of their economic characteristics. Analysis of these zones shows that they cover a
very broad range of common sectors similar to those recorded globally within SEZ programmes.
These include:
 Electronics and electrical appliances;

 Logistics, warehousing and distribution, air logistics and aviation industries;
 Steel manufacturing, machine tools, engineering and heavy machinery;
 Advanced engineering, advanced materials, medical supply/instrumentation, medical
technology, high-tech & light industries;
 Automotive and automotive components;
 Petroleum processing and distribution;
 Energy;
 Chemicals and fertilisers;
 Pharmaceutical products and biotechnology;
 Construction and construction materials;
 Timber and timber products;
 Furniture manufacture;
 Clothing, shoes, jewellery, textiles and fashion;
 Food processing, food products and household products;
 Marine equipment and marine engineering;
 Software and technology;
 Stationery and packaging materials;
 Telecommunication;
 R&D;
 Education (specialised) recreation and leisure;
 Business services, consulting and trade activities; and
 Health and environment.
The above list is not comprehensive but is indicative of the most commonly observed industries
and activities within the analysed sample of SEZs within OIC Member Countries.
41
4.2.1 Spatial Characteristics

Connectivity and access are considered to be key to the success of economic zones. In order to
be physically and economically linked to both domestic and international markets, proximity to
major transport and logistics infrastructure is important.
Size of Zones
Analysis of the selected SEZs indicates that the average size of economic zones within OIC
Member Countries varies between 12ha to 37,500ha. The average size of zones was recorded as
approximately 4,100ha. This is representative of the broad nature of the selected zones as well
as the activities located within them and their industrial focus. The smaller zones tend to be
focused on the service sector and high value manufacturing and industrial activities which the
largest zones are focussed on export processing, industrial, energy and petrochemical activities.
Figure 4 - Size of Selected SEZs within OIC Member Countries
Aqaba Free Zone

Iskandar
Jebel Ali Free Zone (JAFZA)
Ogun Guandong Free Trade Zone
Tanjung Api-Api
Lekki Free Zone
Ma'an Development Area (MDA)
Alexandria Public Free Trade Zone
MBTK
Bitung
Bayan Lepas Free Industrial Zone
Port Klang Free zone
Tanger Med Free Trade Zone Average - ~4,100ha
Bahrain International Investment Park
Ras Al Khaimah Free Trade Zone
North Sitra Industrial Estate
Kenitra Automotive Free Zone (Atlantic Free Zone)
Midparc
Mersin Free Zone
Nasr City Public Free Zone
Antalya Free Zone
Suez Trade Free Zone
King Hussein Business Park
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Hectares
When looking at size of zones by typologies it can be observed that the largest zones, particularly
those over 10,000 hectares are Freeports, SEZs and FTZs, whilst EPZs within OIC Member
Countries are observed to be smaller; between 12 hectares and 2,000 hectares.
42
Distance from Nearest Port
Sea ports play an important role in facilitating external trade and internal market exchanges.
They also provide services to a number of industrial sectors and, therefore, are key when it
comes to the successful development of economic zones within OIC Member Countries. Having
an appropriate carrying capacity and internal infrastructure aligned with the requirements of
industrial sectors served is essential. As shown below, a number of SEZs selected for
comparative benchmarking are port based and have been developed within close proximity to
port facilities.
Additionally, a majority of the ports serving economic zones have a sizeable storage,
warehousing and logistics function – this enables them to act as buffers to regulate the flow of
goods to and from the zones.
Analysis shows that proximity to a port influences the nature of the activities undertaken in the
zone with a number of those very close to a port having bonded warehouses and focusing on
logistics and re-export.
Figure 5 – Distance from Major Ports (km) within Selected OIC Member State SEZs
Antalya Free Zone
Tanjung Api-Api
Mersin Free Zone

Average - ~51km
Midparc
Iskandar Average - ~51km

Olokola Free Trade Zone
MBTK

0 50 100 150 200 250 300 350
As shown in Figure 5, the average distance of the analysed economic zones from the nearest
serving major port is approximately 51km. It is observed that some of the most successful
examples of SEZs include close proximity to port facilities and ease of access to enable to flow of
43
goods and services through the port. One of the most successful examples of this is Jebel Ali FTZ
in the UAE.
Box 13 - Jebel Ali Free Zone47
Jebel Ali Free Zone – Strategic Port Access
Established in 1985, the Jebel Ali Free Zone benefits from proximity to one of the largest
integrated (port and airport) transport and logistics hubs in the Middle East. Located within 4-6
hours of flying distance from Europe and Asia, and within 2-3 hours flying distance to the rest of
the Middle East region, the zone is strategically positioned to serve a sizeable regional and
international market.
The zone is located close to one of the largest ports in the region with a capacity of ~13 million
TEU (Twenty Foot Equivalent Units) and can serve a number of industries reliant on maritime
logistics.
The Jebel Ali Free Zone currently accommodates approximately 7,000 enterprises and is
estimated to contribute up to 25% of Dubai’s non-oil GDP and over 50% of Dubai’s total exports.
It is regarded as one of the most successful FTZs within the MENA region benefiting from its
strategic geographical position and connectivity to African, European and Asian markets.
Distance from Nearest Airport
Proximity to an airport is another key success factor for economic zones worldwide. Airports
not only provide zones with linkages to domestic and international markets, but also act as hubs
for global supplier networks. The role of airports in catalysing industrial activity and enabling
value chains is considered crucial in the development of zones.
Airports can have a symbiotic relationship with economic zones and industrial clusters by
having a positive impact on the effectiveness and operational efficiency of industries served. In
turn, industries can help boost airports’ performance by enhancing asset utilisation. Key
transport infrastructures such as airports and ports also add to the business attractiveness of a
region, thereby making them more competitive.
47 Jing & Yong (2014) The Successful Operation of Dubai Jebel Ali FTZ on Shanghai FTZ Development Enlightenment.
44
Figure 6 – Distance from Major Airport (km) within Selected OIC Member SEZs

Aqaba Free Zone
Tanger Med Free Trade Zone
Olokola Free Trade Zone
Alexandria Public Free Trade Zone
Iskandar
Average - ~44km
Antalya Free Zone
Bitung
Midparc
Mersin Free Zone
Tanjung Api-Api
Lekki Free Zone
MBTK
Suez Trade Free Zone
0 20 40 60 80 100 120 140
As shown in Figure 6, the average distance of the selected zones from the nearest airport is
approximately 44km, which is shorter than the average distance to port facilities.
Nearest Port Cargo Capacity
It is observed that the economic performance of zones not only relies on their proximity to ports,
but also on the capacity of the ports to handle appropriate volumes of maritime cargo. Storage,
warehousing and distribution functions are equally important for ports to be able to serve and
support economic activities effectively.
45
Figure 7 below indicates that the average carrying capacity of ports within proximity to SEZs
within OIC Member Countries is 4.5 million TEUs.
Figure 7 – Capacity of Ports in Proximity to Selected OIC Member SEZs (million TEU)
18
16
14
12
10
8
6 Average - 4.5m TEU
4
2
0
A further consideration relates to the shipping lines and services that utilise a port. The size and
volume of a port facility will not in itself guarantee movements of goods in and out of the
location. The port must also be considered desirable by a sufficient number of shipping and
cargo companies in order to support commercial activity successfully.
Nearest Airport Cargo Capacity
Similar to the carrying capacity of the nearest serving ports, the capacity to handle air cargo
determines the effectiveness of airports to serve economic zones, thereby in turn, impacting the
likelihood of their success.
Figure 8 indicates that the average cargo capacity of airport within proximity of SEZs within
selected SEZs is 417,000 t.pa. It should be noted however that the lack of data with regards to
airport cargo capacity and the significant capacity recorded within Dubai International Airport
which lies within close proximity to Jebel Ali Free Zone, has distorted these figures to some
degree.
46
Figure 8 – Capacity of Airports in Proximity to Selected OIC Member SEZs (000 tonnes per
annum (TPA))
3,000
2,500
2,000
1,500
1,000
Average - 417,000 TPA
500
Summary
The above analysis indicates that some of the SEZs selected for benchmarking have very good
access to strategic infrastructure which has supported their development and growth. Examples
such as Jebel Ali which has excellent accessibility to both a large port and international airports
demonstrates the critical relationship between SEZ development and infrastructure
accessibility and capacity for developing successful SEZs.
4.2.2 Economic Characteristics

Employment and Enterprises
At the typology level, the two key indicators used for the analysis are - average number of
companies per hectare and jobs created per company. Due to incompleteness of data, the figures
presented below are based on those zones for which available, reliable data was provided.
Although not fully representative they give some indication of the trends within the different
typologies. This analysis is presented within Figure 9 and Figure 10.
47
Figure 9 - Firms by Hectare within Selected OIC Member SEZs

Aqaba Free Zone
Mersin Free Zone
Midparc
Average = 8.8 Firms per Hectare
Antalya Free Zone
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00

No. Firms per Hectare
Source: BuroHappold Analysis 2017. Data included where available.
Figure 10 - Jobs per Hectare within Selected OIC Member SEZs
Tanjung Api-Api
MBTK
Aqaba Free Zone
Bitung
Mersin Free Zone Average = 318 jobs per Hectare
Antalya Free Zone
Lekki Free Zone
0 100 200 300 400 500 600 700

Jobs per Hectare
Source: BuroHappold Analysis 2017. Data included where available.
48
Figure 9 illustrates the significant range in the density of firms within selected SEZs in OIC
Member Countries. Whilst the availability of data restricts the size of the sample which can be
analysed it can be observed that some zones are more successful than others in attracting
enterprises to the zones. It is recorded that there is an average of 8.8 firms per hectare within
the analysed economic zones; ranging from 32.4 firms per hectare within the Ras Al Khaimah
FTZ to 0.06 firms per hectare within the Ogun Guangdong FTZ.
A similar pattern is observed when analysing the number of jobs per hectare within selected OIC
SEZs. An average of 318 jobs per hectare is recorded, ranging from approximately 600 jobs per
hectare within the Tanjung Api-Api SEZ to 2 jobs per hectare within the Ma’an Development
Area.
It can be seen that those zones with well-established zone authorities and investment agencies
have become very successful at attracting both enterprises and generating jobs within their
respective zones. A good example of this are the Jebel Ali Free Zone and Ras Al Khaimah FTZ
which have generated a significant amount of employment and attracted a large number of
enterprises to set up in the zone. The ‘One Stop Shop’ approach to business development is
prevalent amongst many of the zones but those zones which offer a fully inclusive or ‘single
window’ service are observed to be more successful at attracting investment.
It should be acknowledged however that the sectoral focus of SEZs will also have a significant
impact on the density of enterprises and employment found within them. For example zones
which focus on logistics functions will contribute fewer enterprises per hectare given the larger
land requirements of these types of sectors. Equally, sectors which have less labour intensive
requirements will record smaller employment densities per hectare compared to more labour
intensive industries such as textiles and garments. It is therefore important to understand the
wider economic context when considering the economic success of SEZs and to consider a range
of indicators to facilitate this judgement.
49
Box 14 - Dubai Free Zones Council – Coordinated Approach to Incentives and Policies
Dubai Freezone Council

The vision of the Dubai Freezone Council is to support the free zones within Dubai to become the
leading destination for investment globally. The council acts as the primary forum for
coordination of free zone activities including review of legislation and policies that regulate the
zones.
The Freezone Council has developed a comprehensive strategy for the free zones in Dubai and
proposes and reviews policies and rules with regards to enterprise registration. In 2017 the
Council approved a new strategic plan to support the Dubai Plan 2021 and the individual free
zone strategies.
The success of Dubai’s free zone policies is evident in the economic performance of the zones
where it is recorded that approximately 225,000 employees works within approximately 19,000
enterprises within the free zone boundaries.
4.2.3 Incentives
There are a range of incentives offered by the different zones for firms choosing to locate within
the zones. A comparative matrix of fiscal and non-fiscal incentives is presented below in Table
4-3.
Table 4-3 - Comparative Matrix of Incentives within Selected OIC Member State SEZs
Zones Fiscal Incentives Non-fiscal Incentives
0% corporation tax (with a 10 year
guarantee)
Bahrain 100% foreign ownership
Duty free access to all GCC markets
Bahrain International 100% repatriation of capital
Investment Park Exemption from import duties on raw
No recruitment restrictions
materials and equipment
North Sitra Industrial Estate No minimum capital required
Duty free imports of raw materials and
equipment for manufacturing
Egypt 5% income tax vs 10-20% outside SEZ Accelerated customs service within SEZ
Alexandria Public FTZ 10% unified income tax vs 20% outside Access to sales within domestic market
SEZ Duty on sales to domestic market will be
Duty free import of capital equipment, raw assessed on the value of imported inputs
Suez Trade Free Zone materials and intermediate goods only
Permission to hire foreign workers in

Exemptions on corporation tax depending directorial or managerial roles
Indonesia on scale of investment - from 20%-100% Ease in regulations with regards to land
Tanjung Api-Api VAT and Luxury Sales Tax exempt for ownership and land acquisition
MBTK certain taxable goods Granted land rights for those who
Bitung Exemption from import duties for certain already have land
goods to SEZs Ease in regulations with regards to
immigration of foreign business people
50

Exemptions for import of raw direct
materials and supporting materials for
production purposes
No import income tax
No tax agency incentives
Reduction in property tax in compliance of

law and regulation
5% income tax on income generated from

activities within ASEZ in certain sectors
Exemption from social service tax No foreign equity restrictions on

investment in tourism, industry, retail
Exemption from sales tax on majority of
and other commercial services
goods and services
100% foreign ownership available
Jordan Exemption from annual land and building
taxes on utilised property No foreign currency restrictions
Aqaba Free Zone
Exemption from taxes on distribution of Full repatriation of profits and capital
dividends and profits on activities in ASEZ Streamlined labour and immigration
and outside Jordan procedures - project may employ up to
No tariffs or import taxes on imported 70% foreign labour as an automatic right
goods for individual consumption and
registered enterprises
5% income tax on activities within the

economic zone
No restrictions on foreign ownership
Exemption from taxable income from
Streamlined business procedures,
export
licensing for expatriates and property
Jordan Exemption from sales tax on goods sold registration/transfer procedures
into (or within) the economic zone
King Hussein Business Park Flexible labour regulations
Exemption from import duties on all
Ma’an Development Area Improved enforcement of intellectual
materials, instruments and machines
property rights
within economic zone
Streamlined customs regulations
Exemption from social services tax
Clear land ownership policy
Exemption from dividends tax on income
accrued within the economic zone
Pioneer firms receive exemption from

100% foreign ownership allowed for
corporate income tax and development tax
companies exporting >80%
of 5% for tax holiday period of 5 to 10
Malaysia No equity restrictions
years. Unabsorbed capital allowances
Bayan Lepas FIZ incurred during the pioneer period can be Foreign exchange administration
Port Klang Free Zone carried forwards flexibilities and expatriate positions
Iskandar Investment Tax Allowances are also Unrestricted employment of local and
available for companies which cannot foreign workers for some sectors
obtain pioneer status and allows an Protection of intellectual property
allowance of 60% on capital expenditure
51

within five years. This allowance can be Expedited timescale for license
offset against 70% of its statutory income applications
for each year of assessment reducing Human Resource Development Fund
corporate income tax.
Special industrial building allowance for
Exemption from payment of sales tax training
Exemption from payment of excise duty
Deductions for approved training, pre-
Exemption from payment of service tax employment training and non-employee
Reinvestment allowance training
Full exemption from corporate tax for first

five years following by fixed rate of 8.75%
for 20 year period
Subsidies for some industries through
Hassan II fund
Contribution of up to 30% of cost of
buildings
Morocco
Support system for operators in training
Contributions of up to 10% of costs of
Tanger Med FTZ efforts
acquiring new capital goods
Kenitra Automotive Free Zone Training plan tailored to needs of the
Total state participation up to 15% of total
Midparc automotive sector
investment
Contributions of up to 30% of total land
acquisition costs
Import duty exemptions

VAT exemptions for capital costs such as
equipment good, materials and tools
required to achieve investment projects
Nigeria 100% tax holidays for all federal, state and

Ogun Guangdong FTZ local government taxes, rates, duties and Provision of offsite infrastructure
levies
Lekki Free Zone
100% foreign investment is allowed

No minimum requirement for capital
Exemptions from corporate income tax
investment
Free transfer of profits
Turkey Sales to domestic market is allowed
Income tax exemptions over salaries
No restrictions on work permits for
Mersin Free Zone providing a minimum of 85% of goods are
expatriate employees
Antalya Free Zone exported
Stocks can be kept in FTZs for unlimited
Exemption from custom related taxes on
periods of time
imports to economic zones
Incentives and advantages are available
to all firms regardless of their origin
United Arab Emirates 0% corporation tax for 50 years 100% foreign ownership allowed
Jebel Ali Free Zone (renewable concession) No restrictions on repatriation of capital
52

Ras Al Khaimah FTZ 0% import and re-export duties No restrictions on employment
0% personal income tax No restrictions on hiring of foreign
Low land rates employees
Zero currency restrictions
Access to land through long-term

renewable leases
As Table 4-3 demonstrates, within the selected OIC SEZ case studies, a broad range of fiscal and
non-fiscal incentives are offered. It is observed that there are a number of common incentives
deployed to attract investments to SEZ, many of which have commonality with global
observations in SEZ development. The key regulatory, fiscal and financial incentives identified
in the above analysis are presented below:
 Regulatory incentives:
o Enhanced ability to employ foreign nationals; granting of visas and work permits;
o Guarantees against nationalisation, expropriation and price controls;
o Greater flexibility in repatriation of profits; and
o Higher share of foreign business ownership.
 Fiscal Incentives:
o Exemption from corporate and personal income tax;
o Reductions in customs duties, import/export tariffs and VAT on items related to
investment; and
o Income tax exemption (mostly for an extended duration of ~5-15 years).
 Financial Incentives:
o State financed infrastructure;
o Repatriation of profits;
o Soft loans from national development banks; and
o Preferential rates for land and utilities.
4.3 Evaluation of SEZ Development in OIC Member Countries

The following matrix provides a comparison of the SEZs selected for the comparative and
competitive benchmarking exercise including additional factors such as cost of energy and
competitive advantage.
53
Table 4-4 - Comparative Analysis of Selected OIC member state SEZs
Indicators
Cost of Cost of
Comparator Matrix Distance Distance Organisation /
Power Water Competitive Firms Jobs / Year
Size from from Operator
($ per (per Advantage / Ha Ha Established
Port Airport Characteristics
kWh)1 m3 ) 2
Food and
Bahrain International
247 12.8 7 Public 0.05 1.06 Electrical 0.20 n/a 2010
Investment Park
Manufacturing
North Sitra Industrial Re-export /
200 4 11.2 Public 0.05 1.06 0.60 n/a n/a
Estate warehousing
Petrochemicals
Alexandria Public
570 20 20 Public 0.30 0.24 and textile n/a n/a 1973
Free Trade Zone
manufacturing
Textiles, paper
Nasr City Public Free
76 125 25 Public 0.30 0.24 and leather n/a n/a 1973
Zone
manufacturing
Petrochemicals
Suez Trade Free Zone 32 0 130 Public 0.30 0.24 and metals n/a n/a 1975
manufacturing
Export processing,
logistics, rubber
Tanjung Api-Api 2,030 0 68 Public 0.09 1.01 n/a 605.26 2014
processing and
petrochemicals
Maloy Batuta Trans Palm oil industry
557 193 125 Public 0.09 1.01 n/a 445.34 2014
Kalimantan and logistics
Fishing industry
Bitung 534 0 43 Public / Private 0.09 1.01 and food n/a 140.53 2014
manufacturing
Tourism, logistics,
Aqaba Free Zone 37,500 5 7 Public / Private 0.09 2.20 heavy and light 20.24 283.40 2001
industry
King Hussein Business Technology and
12 330 35 Private 0.09 2.20 0.18 n/a 2010
Park services
54
Indicators
Cost of Cost of
kWh)1 m3 ) 2
Ceramics, plastics,
electrical
Ma'an Development
900 120 120 Public 0.09 2.20 manufacturing n/a 1.60 2008
Area (MDA)
and renewable
energy
Electronics,
engineering,
Bayan Lepas Free
525 18 10 Public 0.11 0.43 automotive and 16.19 566.80 1970
Industrial Zone
medical
manufacturing
Export and
Port Klang Free zone 405 0 70 Public 0.11 0.43 n/a n/a n/a
logistics
Tanger Med Free Automotive
350 0 11 Private 0.13 n/a 0.24 202.43 2003
Trade Zone manufacturing
Kenitra Automotive
Automotive
Free Zone (Atlantic 198 209 59 Private 0.13 n/a n/a 121.46 n/a
manufacturing
Free Zone)
Aerospace and
Midparc 140 5 45 Private 0.13 n/a electronics 1.34 n/a 2011
manufacturing
Ogun Guangdong Free Pharmaceutical
10,000 105 30 Private 0.13 n/a 0.06 17.21 2008
Trade Zone manufacturing
Industry and
Lekki Free Zone 1,176 5 94 Private 0.13 n/a 0.03 1.82 2008
logistics
Light industry and
Mersin Free Zone 84 5 60 Private 0.08 1.29 1.70 27.75 1986
warehousing
Textile
manufacturing,
Antalya Free Zone 62 0 25 Private 0.12 1.06 0.40 15.40 1985
tourism and
maritime
55
Indicators
Cost of Cost of
kWh)1 m3 ) 2
Warehousing,
Jebel Ali Free
12,500 0 5 Private 0.12 2.44 logistics and 26.32 465.59 1985
Zone (JAFZA)
re/exports
Metals
Ras Al Khaimah Free manufacturing,
223 3 21 Private 0.13 2.08 32.39 n/a 2000
Trade Zone warehousing and
services
Source; BuroHappold Analysis 2017
1. Average cost of power (per kWh) has been based on national averages in the absence of information available for the individual economic zone.
2. Average cost of water (per cubic metre) has been based on national averages in the absence of information available for the individual economic zone.
n/a = information not currently available
56
Table 4-4 summaries the comparative analysis between the selected SEZs within OIC Member
Countries against key evaluation criteria. It can be observed that the most successful zones in
terms of total employment and numbers of firms, were those zones which were located in close
proximity to major port infrastructure with large capacity for movement of imports and exports.
In particular it can be seen that those zones with a sectoral focus on the export / re-export of
goods and heavy industrial activities generated the most jobs per hectare whilst those focused
on light manufacturing activities such as textiles and pharmaceutical products generated the
least number of jobs.
As previously discussed it was also observed that those member countries with established zone
authorities and investment agencies were the most successful in terms of employment and
enterprise generation indicating that these are key factors to success.
Whilst this section has attempted to identify key drivers of success within benchmarked OIC
member country SEZs, it should be acknowledged that factors which contribute to success are
also likely to be very context specific. The importance of prevailing economic conditions should
be acknowledged and this is reflected in the comparative analysis of zones such as Jebel Ali
within the UAE (an advanced development economy) and those zones such as Lekki Free Zone
which is located within a developing economy.
4.4 Key Successes of SEZ Development in OIC Member Countries

Some of the most successful SEZ programmes within OIC Member Countries have managed to
facilitate the evolutionary development of zones from first stage enclave-type zones focused on
employment and skill upgrading through increasing FDI volumes in export orientated activities
to second stage diversification of the production base of the domestic economy. In a number of
cases it is apparent that the economic diversification of domestic economies has been facilitated
by the introduction of SEZs and attracting new manufacturing and service industries to replace
or supplement traditional resource based economies. As mentioned earlier in Box 2, the United
Arab Emirates has been one of the most successful economies globally at implementing the free
zone model to attract high value activities to achieve their objectives of diversifying into non-oil
sectors.
57
Box 15 - Malaysian EPZs48
Malaysia is one of the most successful OIC Member States in terms of achieving industrial evolution
through SEZ development. The Industrial Strategy adopted in 1987 focused on EPZs as growth
poles from which integration with the domestic economy was promoted with the aim of increasing
the volume of domestically sourced products to MNCs within the zones and increasing backward
linkages with the domestic economy. This approach resulted in domestic suppliers acquiring new
skills and competencies.
In addition, MNCs within the EPZs invested in the existing skills and knowledge of their staff
resulting in a high proportion of Malaysians occupying managerial and technical occupations. This
demand for skilled workers and managers also resulted in public/private sector collaboration in
skills development such as the creation of the Penang Skills Development Centre in 1989 in the
Bayan Lepas Free Industrial Zone.
This transfer of technology and knowledge can be observed in the number of Malaysian executives
within MNCs in Malaysia. It is further demonstrated by the gradual movement of research and
development facilities to Malaysia, facilitated by the strength of Malaysian technical staff.
In 2006 it was estimated that SEZs within Malaysia accounted for 72% of FDI, 83% of exports and
5% of employment; predominantly within the E&E sector.
Box 16 - Bangladesh EPZs49
Bangladesh, in 2015, provided employment for approximately 450,000 workers within eight EPZs
which accounted for approximately 20% of total exports (US$ 55.19 billion). In the period 2002-
2008 export values were US$ 11.0bn, compared to a total of US$ 31.7bn between 2009-2015. This
indicates significant growth over recent years of approximately 187%. However, whilst export
values have increased following the introduction of EPZs, it has been noted by some that zone
development has had little success in economic diversification with garment production still the
primary production activity despite aspirations to increase the number of high technology
industrial activities.
Bangladesh has however been very successful in generating employment opportunities for women
with approximately 64% of the zone workforce comprised of women.
There has also been notable successes in countries such as Egypt which have managed to
leverage Chinese investment to implement successful SEZ programmes. A good example of this
is the Suez Economic and Trade Cooperation Zone which has been developed in partnership
48Asian Development Bank (2015) Asian Economic Integration Report 2015: How can Special Economic Zones Catalyze
Economic Development.
49 Bangladesh Export Processing Zones Authority (BEPZA) (2016) BEPZA Annual Report 2015-2016.
58
with the Tianjin Economic-Technological Development Area (TEDA) Investment Holdings

group.
Box 17 - Egypt TEDA Zone – Chinese Investment50 51
By 2013 it was recorded that the TEDA zone had attracted 49 companies, with 38 operational
generating a workforce of approximately 1,000 workers and total investments of $358 million.
Companies located within the zone either sell within the domestic market, export to China or serve
other third party countries.
The zone’s partnership arrangement has been more successful than other examples of Chinese
investment in African SEZs due to balanced joint ownership agreements, including 25% from
Egyptian parties including banks and state owned enterprises, and clear management and
organisational structures. The management structure is tiered and includes a high level joint China-
Egypt Task Force for the zone. Additionally the zone has an individual Egyptian SEZ Authority which
operates under the Prime Minister, there is a licensed JV (Main Development Company) which has
authority to develop the zone and a development company (Egypt TEDA) which executes what has
been licensed to the Main Development Company.
Given the close relationship in operating, developing and managing the zone, there are also active
joint marketing activities both in China and in other global markets.
The zone has also benefited from a clear structured legal framework with regards to labour and
suppliers which states that one foreign employee is allowed for every nine Egyptians employed. It
is estimated that the first stage of the TEDA zone has generated 1,800 local workers of which
approximately 5% are Chinese.
4.5 Challenges of SEZ Development in OIC Member Countries

4.5.1 Key Challenges within OIC Member Countries
In terms of economic performance, SEZs within sub-Saharan African (SSA) OIC Member
Countries have performed comparatively worse than other in other regions, with some zones
struggling to generate positive employment generation and export performance. Whilst not
specific to OIC Member Countries, the following data in Table 4-5 demonstrates the economic
performance of SSA zones compared to selected regions.
50 Zeng, (2015) Global Experiences with Special Economic Zones: Focus on China and Africa. World Bank.
51Bräutigam, D.A. and X. Tang. (2013) Going Global in Groups: Structural Transformation and China’s Special Economic Zones
Overseas
59
Table 4-5 - Estimates of Direct Employment and Exports in SEZ Regions

Direct Employment Exports (US$
Region
(million) million)
Sub-Saharan Africa 1.0 8,605
Asia and Pacific 61.1 510,666
Central and East Europe and Central Asia 1.6 89,666
Middle East and North Africa 1.5 169,459
Source: FIAS (2008)
Key reasons for poor economic performance includes (but is not limited to):
 Poor governance and regulatory environment - including ease of doing business.

 Poor business environment – including lack of ‘one-stop-shops’;
 Inefficient zone management arrangements;
 Unreliable utilities infrastructure – including power supply issues;
 Poor quality transport infrastructure - including port / airport capacity; and
 Some political and social developments – which negatively affects investor confidence.
4.5.1.1 Key Challenge 1: Infrastructure Provision
A particularly acute example of challenges facing SEZs within OIC Countries within SSA is the
provision of high quality infrastructure. This is evident when examining the average monthly
downtime of electricity supply within African SEZs, with a particular focus on Nigeria. It is clear
that Nigeria still suffers from significantly greater disruption due to power shortages than other
OIC Member Countries such as Senegal and other SSA African countries with SEZ development.
Nigeria has however managed to reduce downtime averages compared to area outside of SEZs
by approximately 50%. This is presented below in Figure 11.
60
Figure 11 – Average Monthly Downtime due to Power Outages – SSA African SEZs
250
206
200
150 136
120
95
100
67 70
50
50 34 32 31
11
2
0
Ghana Kenya Lesotho Nigeria Senegal Tanzania
SEZ Average Country Average
Source: Farole 2011
Infrastructure provision is an acute challenge with many zones constrained by the quality and
provision of infrastructure. Power, gas, roads, ports and telecom infrastructure are particular
challenges and there has been a recent trend with regards to Public Private Partnerships (PPP)
to solve these constraints. Given the typical size of investments required to service these zones
however, there is a strong requirement for solid commitment for Government for these projects
alongside active participation of the private sector.
Box 18 - Infrastructure Financing in Nigerian SEZs
Within the Lekki Free Zone, a concession has been granted by the Lagos State government to
build a sea port near the zone and there are plans to build an airport for the planned Lekki
metropolis. The Ogun-Guangdong zone also faces challenges in terms of off-site roads, power
and gas but a potential investor has agreed to build a power plant for the zone.
4.5.1.2 Key Challenge 2: Legal, Regulatory and Institutional Framework
Another key challenge of SEZ implementation within OIC Member Countries has been issues
related to the legal, regulatory and institutional framework. It is noted that countries such as
Nigeria have implemented SEZ development with either outdated or non-existent frameworks
even though SEZ developments have been launched and made operational. Particular examples
include the Lekki Free Zone and Ogun-Guangdong Zone in Nigeria.52
52 Zeng, D (2012) SEZs in Africa: Putting the Cart in Front of the Horse?
61
Investment arrangements are often undertaken on a Memorandum of Understanding (MOU)

basis and as such there is a lack of transparency and clarity of roles and responsibilities between
government departments and regulators when investors come to engaging with public bodies.
This can lead to confusion and lack of transparency with regard to the regulatory, legal and
operational environment and lead to perceptions of increased investment risk.
The lack of an effective legal, regulatory and institutional framework can also hinder the ease of
doing business within SSA SEZs. The costs of business are typically higher within these countries
than in other regions in terms of registration, licensing, taxation, trade, logistics, customs
clearance, foreign exchange and service delivery.53
Box 19 - Legal and Regulatory Framework in Nigerian SEZs54
A key example of this is within Nigeria where the NEPZA legal framework for Free Zone
implementation does not apply to the current free zone operations. This means that at
present, the legal act does not allow products which are made or processed within Nigeria’s
free zones to be imported to the domestic market. Whilst new regulations introduced by
NEPZA and the Nigerian Ministry of Trade and Investment allow for the import of products
that meet a minimum of 35% value addition and payment of customs duties the Customs
Administration does not currently acknowledge these regulations. This has detracted from
potential investment within Nigeria’s SEZs.
There have also been challenges in the design of the institutional frameworks for regulating
SEZs, with experiences of conflicts between public and private operators within certain OIC
Member Countries such as Bangladesh.
Box 20 - Conflicts between Public and Private Operators - Bangladesh
In Bangladesh the same authority, the Bangladesh Export Processing Zone Authority (BEZA)
is responsible for delivering zone development, management and regulation as set out
within the institutional and legal framework. Despite passing a law allowing for the
provision of private zones however, the first privately developed zone project languished for
8 years awaiting for approval for its operating license.
4.5.1.3 Key Challenge 3: Zone Management and Institutional Knowledge
Given a lack of institutional capacity within some OIC Member Countries, there have been
significant challenges in facilitating effective zone management practices particularly with
regards to fostering an efficient business environment including the provision of a ‘one-stop-
53 Zeng, D (2015) Global Experiences with Special Economic Zones: Focus on China and Africa.
54 World Bank (2012) An Overview of Six Economic Zones in Nigeria: Challenges and Opportunities.
62
shop’ for investors. Within some zones, particularly within Sub-Saharan Africa (SSA), this has
hindered the promotion of zones and the facilitation of investor interest.
The operational ‘know-how’ and lack of institutional knowledge is a key challenge for
developers when identifying partners to provide the operational and zone management
functions. There have however been some successes in this regard in certain zones such as the
Lekki Free Zone based on the influence of Chinese Investment. The Chinese stakeholder has
conducted several workshops/study tours for local partners to understand the Chinese/East
Asian experiences in SEZ development and to facilitate knowledge sharing practices.
4.5.1.4 Key Challenge 4: Poor Quality Business Case and Economic Rationale
The scale, geographic location and development model of SEZs are key challenges for OIC
Member Countries and there have been particular examples of where a lack of economic
rationale for SEZ development has led to failure of the zone. In order to achieve success there
must be a clear link between the attributes of the zone and government policy objectives to
ensure that the zone programme is solidly rooted and is likely to attract strong political and
institutional support. In addition, SEZs need to be integrated into the wider economy and a clear
understanding of how SEZs can help to address national economic development and economic
priorities needs to be established.
Box 21 - SEZ Development in Nigeria – Calabar EPZ
The decision to establish EPZs in Nigeria in the 1990s was based on a vision to increase
manufacturing exports. A decision was made to establish a ‘flagship’ EPZ in the Cross Rivers State
in the City of Calabar. At that time however, Calabar was not a major manufacturing or logistics
centre within the country and the port of Calabar was relatively small compared to other ports
within Nigeria. The port was not located in a strategically advantageous location and as such there
were significant challenges in attracting export-orientated investment to the zone. As a
consequence, the zone failed to develop as planned.
There have also been documented challenges in terms of developing a strong economic case for
site location and sector selection. In some OIC Member Countries there may be a strong political
will regarding the decisions about site location and sector selection. International experience
has shown that the location of an SEZ in a country, and particularly its proximity to major trade
gateways such as ports and airports, is critical to SEZ success and growth.
63
Box 22 - SEZ Development in Bangladesh
Bangladesh has seen great success in terms of attracting investment to the EPZs located within
the main cities of Dhaka and Chittagong, as well as the recently established Dhaka-Chittagong
corridor. However the three zones within the northern (Uttara EPZ) and western (Ishwardi and
Mongla EPZs) parts of the state have struggled to attract investment and suffer from poor
economic performance. All of these EPZs are located more than 600km from the nearest
international port and hundreds of kilometres from major centres such as Dhaka. A combination
of poor quality transport and utilities infrastructure have compounded the comparative
disadvantages of these locations and has resulted underdevelopment of the manufacturing
clusters and poor access to supplies and imports.
4.5.1.5 Achieving Positive Economic Impacts
Like global trends in SEZ development, many zones in OIC Member Countries are established to
achieve economic objectives such as increasing FDI flows, diversifying exports and encouraging
spill over or linkages with the domestic economy.
Perceptions of the host country as a location for doing business can be a significant barrier to
attracting investment to zones within OIC Member Countries. It is acknowledged that without a
marketable product to sell to foreign investors then investment is unlikely to localise itself in a
Zone. Negative perceptions of business environments include regulatory uncertainty, poor
intellectual property protection and legal frameworks, inadequate infrastructure provision and
perceptions of corruption.55
Box 23 - Dakar EPZ – Challenges to Investment56 57
Dakar faced some challenges with regards to its attractiveness to investment and its bureaucratic
procedures. At the time the zone was closed in 1999 it accommodated just 14 active enterprises
after 25 years of operation. Cling and Letilly (2001) identify the following problems:
 Excessive bureaucracy involving different institutions in the country, especially

customs;
 Unnecessarily long delays in obtaining necessary permits (often more than one
year);
 Unrealistic goals imposed on potential investors, both with regard to jobs to be
created (each company was required to employ at least 150 people) and to initial
investment;
 Elevated cost of other factors of production (energy, water, communications).
55Moran, T (2011) International Experience with Special Economic Zones – Using SEZs to Drive Development in Countries
Around the World.
56 FIAS (2008) Special Economic Zones: Performance, Lessons Learned and Implications for Zone Development.
57 Cling, J and Letilly, G (2001) Export Processing Zones: A Threatened Instrument for Global Economy Insertion?
64
Establishment of backward linkages can be hampered by the placement of zone enterprises

within global markets meaning that many companies import inputs through established supply
chain networks rather than procuring inputs within the domestic economy. This is often
facilitated through exemptions from customs and VAT on imported raw materials and
machinery. At the same time, domestic suppliers face issues in meeting the quality standards
necessary to supply inputs to zone enterprises. This can result in the suppression of backward
linkages apart from within low value added products such as bulk packaging and service and
maintenance activities.
Box 24 - Backward Linkages in Tunisian SEZs58
Tunisia’s EPZs struggled to generate backward linkages with the domestic economy primarily due
to a tax regime which limited the potential for trade between the garment sector within the EPZs
and the textile sector within the domestic economy. Whilst seemingly complementary in terms of
linkages, Tunisia’s EPZ have historically generated very little in the way of domestic supply chain
linkages given import duties are payable on domestic inputs to EPZ companies. In contrast EPZ
companies are able to access high quality, established global supply chains and import inputs
exempt of duties and often at a lower price and better quality than domestic inputs.
58Moran, T (2011) International Experience with Special Economic Zones – Using SEZs to Drive Development in Countries
Around the World
65
5 Lessons Learnt from SEZ Case Studies

Whilst the previous sections have focused on developing a broad overview of the state and
performance of SEZs both internationally and across the OIC Member Countries, this section
presents the findings and analysis of a detailed review of six major and successful zones within
four OIC Member Countries and two non-OIC Member Countries.
The four OIC case studies are represented within each of the main OIC regions; Africa, Asia and
Arab Groups. Two case studies from OIC Member Countries, namely Malaysia and Morocco have
been investigated as field visits, while other case studies from OIC Region, namely Nigeria and
Jordan and Non-OIC case studies, Singapore and Ethiopia have been analysed through desk
studies.
5.1 Methodology
The detailed case study examples have been compiled through a combination of desktop study
and site visits. The site visits were used to gain qualitative and qualitative data from the
following key stakeholders (where possible):
 Investors;
 Investment Promotion Agencies;
 Government;
 SEZ Developers;
 SEZ Regulators; and
 SEZ Operators.
Interviews with key relevant stakeholders were undertaken as part of the case study site visits
and focused on the key themes and questions outlined within Annex I. Data was collected
through interviews and perspectives on key challenges and success factors were explored to
offer detailed insights into lessons learnt. The findings of these interviews are presented within
each of the field visit case studies in this section.
A number of desk based case studies have also been undertaken drawing upon existing
databases of benchmarking data, professional experience and knowledge and publically
available research material.
The following table outlines those case studies which have been identified for the purpose of
this report. These case studies were selected based on their geographical location within each
of the OIC’s three regional groups; Arab, Africa and Asia. In addition, based on the consultants
expert knowledge and discussions with World Bank colleagues these zones were judged to
represent successful cases for analysis to determine lessons learnt and best practice amongst
OIC Member Countries. Additionally, zones such as Tanger Med Zone, Aqaba and Lekki Free
66
Zone have been acknowledged as globally successful zones by organisations such as fDi
Intelligence which undertake annual awards recognising global success in free zone
development. 59 Others, such as Penang FIZs are globally recognised successes in SEZ
development.
Table 5-1 - Detailed Case Studies – Selected Zones
Zone Region Case Study / Desk-top Study
Lekki Free Zone Nigeria - Sub-Saharan Africa Desk-top Study
Bole Lemi Industrial Zone Ethiopia - Sub-Saharan Africa Desk-top Study
Penang Free Zone Malaysia - Asia Case Study Visit
Jurong Freeport Singapore - Asia Desk-top Study
Tanger Med Zones Morocco - MENA Case Study Visit
Aqaba Free Zone Jordan - MENA Desk-top Study
The following section examines each of the six case studies in turn, to develop a detailed review
of the four OIC Member Countries’ and two non-OIC Member Countries SEZ experiences in terms
of economic performance and lessons learnt within the individual SEZs. This also includes
analysis of economic data available at national and regional levels to gain a broad understanding
of the impact of the identified SEZs on national and regional economies. Where information and
data is available the case study analysis seeks to establish the success of the SEZs in creating
backward linkages, generating employment, enhancing value added exports and attracting
foreign direct investment.
59fDi (2015) fDi Global Free Zones of the Year 2015. Available from: http://www.fdiintelligence.com/Locations/fDi-Global-
Free-Zones-of-the-Year-2015-Winners.
67
5.2 Case Study 1: Penang SEZ, Malaysia

5.2.1 Overview and Description
This case study focuses on the State of Penang in Malaysia. The State is divided into two halves;
Penang Island which is located on the Strait of Malacca and Seberang Perai which is a narrow
stretch of hinterland on the mainland of Malaysia bordered by Kedah in the East and North and
by Perak in the South.
Penang benefits from strong trade related infrastructure including the Bayan Lepas Airport and
the Seberang Perai sea port.
Table 5-2 - Penang SEZ Overview
Zone Primary Activities
Established 1972
Area ~ 3,160 ha
No. of firms on-site ~830
Authority in Charge Penang Development Corporation (PDC)
Source: PDC interview (2017)
Vision and Objectives
In the early 1960s, following a period in which Penang’s trade-dependent economy had
stagnated, the State government embarked on a programme of import substitution based
industrialisation to boost the local economy. However, given its relatively remote location
within North West Malaysia and the small domestic market, many industries failed within the
first three years. By the end of the decade, these programmes had not succeeded in stimulating
economic growth within the state and as a consequence Penang’s per capita income was 12%
lower than the national average, whilst unemployment had reached 9%.60
Following the loss of Penang’s free-port status in 1969, the Malaysian government
commissioned a study by Robert R. Nathan Associates to analyse the challenges and
opportunities for Penang’s economy. The report identified that an export-led growth strategy
would be the only viable solution with a focus on Bayan Lepas given its transport accessibility
(proximity to the airport) and access to a large pool of labour.
60 Athukorala (2014) Growing with Global Production Sharing: The Tale of Penang Export Hub, Malaysia
68
The electronics industry was subsequently selected as the priority sector based on its significant
employment generation potential and compatibility with Penang’s role as a centre for tourism
as a ‘clean’ industry.
Development of the SEZ
The first Free Trade Zone (FTZ) within Penang opened in August 1972 and was named the Bayan
Lepas FTZ. The zone aimed to attract businesses and investment within industries which
depended on the movement of materials and products by air-transport, including; electronics,
medical supplies and other precision and machining industries. The Bayan Lepas FTZ was
subsequently extended into three further phases.
In 1980, a second FTZ opened in Seberang Perai close to the sea port. Given its proximity to the
port, this zone was designed to attract industries producing bulk items such as household
electrical appliances.
Within close proximity to the FTZs, the PDC also developed five industrial estates which were
set up to accommodate supportive and ancillary industries related to businesses and industrial
activities within the FTZs. This requirement resulted in the creation of two categories of free
zones; the Free Industrial Zones (which replaced the original Free Trade Zones) (FIZs) and the
Free Commercial Zone (FCZ) which were created to cater for the needs of trading and services
businesses.61
Penang has undergone significant industrial transformation since the 1960s when trading and
agriculture were the dominant activities. Following the introduction of the FTZs and the
industrial estates Penang has fostered a strong manufacturing based economy. The following
figure outlines the transformational change within the Penang SEZs from basic assembly
functions to high value manufacturing and research and development activities.
61 Chai and Im (2009) The Development of Free Industrial Zones – The Malaysian Experience.
69
Table 5-3 – Penang Industrial Zone Development
High Automated Diversification Beyond Semi- Moving Up the Value

Setting Up of MNCs Beginning of Mechanisation
Manufacturing conductor Activities Chain
Trading Low cost Precision tooling Hard disk drive LED – packing & testing SSO
Agriculture Labour intensive Local contract Test system development Wireless/RFIP Design & development
operations manufacturing
Supply chain management Medical devices LED – solid state, chip,
Semiconductor-automation display / design
R&D applications Biotechnology
Assembly & test Integrated solar
Vertical integration Optoelectronics
industry
Consumer electronics
EMS Solar support
Computing & mobiles
Development of local
Local SME migrating to electronics
supporting industries
system design & development
Aerospace / avionics
1960s 1970s 1980s 1990s 2000s 2010s

Source: Penang Development Corporation (2017)
70
5.2.2 Spatial Profile

The Penang Free Trade Zones, Free Commercial Zones and associated Industrial Estates cover
an area of approximately 3,150 ha. The spatial profile of each of the zones and industrial estates
is detailed below.
Table 5-4 – Spatial Profile – Penang SEZ
Type (FIZ / FCZ / Industrial Distance to Distance to

Zone Gross Area
Estate) Nearest Airport Nearest Port
Bayan Lepas 520 ha FIZ / FCZ62 0km 20km
Prai 930 ha FIZ / Industrial Estate63 20km 7km
Mak Mandin 100 ha Industrial Estate 25km 2km
Seberang Jaya 30 ha Industrial Estate 25km 2km
Bukit Tengah 320 ha Industrial Estate 25km 11km
Bukit Minyak 600 ha Industrial Estate 30km 20km
Batu Kawan 650 ha Industrial Estate 20km 30km

62Within Bayan Lepas land situated within Mukim 12, District of Barat Daya and land is designated as a Free Commercial Zone.
This includes the Air Cargo Forwarding Agents Warehouse Complex within Penang International Airport
63 Within Prai the Prai Wharf is designated as a Free Commercial Zone
71
Figure 12 – Penang FIZs and Industrial Estates
Source: PDC (2017)
5.2.3 Legislative and Regulatory Framework
Special Economic Zone Act and Regulations
5.2.3.1 Legal
In 1971, Malaysia passed the Free Trade Zone Act to create Export Processing Zones within
Malaysia. Penang SEZ in Bayan Lepas was the first zone to be set up in 1972.
As industrialisation spread rapidly across Malaysia there was a corresponding development of

trade and services such as bulk breaking, repacking, re-labelling and other ancillary activities
attributed to the export market which required bonded areas or free zones to facilitate these
new activities.
These free zone categories are governed via the Free Zones Act 1990 and the Free Zones
Regulations 1991 which replaced the original Free Zones Act 1971. Under the Free Zones Act
1990, the Minister of Finance may declare an area to be a free zone, primarily for the
manufacture of goods for export.
72
Box 25 – Penang SEZ Success Factors – Evolution of Legal Framework – PDC Interview
The PDC emphasised the importance of developing flexible legal frameworks to maximise
investor choice. They highlighted the conflicts between the FTZs and supporting industrial
estates in the early phases of the Penang FTZ programmes due to the differences in incentives
offered within and outside the zones. In 1967 the LMS customs regime was introduced to
allow licensed warehouses to be established within the industrial estates and to incentivise
investment outside of the FTZs.
5.2.3.2 Regulations
In order to qualify for location within the Penang FIZ, a business has to export a minimum of
80% of its output and its raw materials and components should be primarily imported although
the Government does encourage the use of local supply chains. In addition, businesses can apply
to the Ministry of International Trade and Industry to reduce its export condition to 60% under
special circumstances.
Licensing, Ownership and Zoning Restrictions
Within the Penang Free Trade Zones and the industrial parks, land is typically offered on a sale
or lease basis. Sale of land is typically made on a leasehold basis for a period of either 60 or 99
years.
Incentives
Under the Free Zones Act (1990) and Free Zones Regulations (1991) companies located within
an FIZ or with LMW status are eligible for a number of fiscal incentives.
 Duty free imports of raw materials – including packaging materials and machinery and
equipment, this excludes:
o Fuel;
o Office furniture; and
o Equipment such as air conditioners, construction materials, food and drink, vehicles
and spare parts and wearing apparel for employees.
 Exemption from payment of sales tax;
 Exemption from payment of excise duty; and
 Exemption from payment of service tax.
5.2.4 Organisational and Administrative Profile
The economic reforms within the late 1960s and early 1970s included the creation of a new
statutory body, the Penang Development Corporation (PDC), in November 1969. The PDC was
formed under the State Enactment as the principal development agency for the state. Its legal
73
status enabled it to react much more proactively compared to government departments which
faced bureaucratic constraints due to the relationship between the State and Federal
governments64. The PDC took on the role of coordinating the interaction between the municipal
administration and the state government.
The PDC’s primary objectives in terms of FIZ and Industrial Estate development within Penang
is to develop, plan and implement development projects. This includes industrial park
development, township development (residential accommodation) urban redevelopment,
affordable housing and investments. Crucially, the establishment of an autonomous, quasi-
public body enabled the PDC to gain the powers to borrow money from banks. This has allowed
the PDC to increase its land holdings and develop Penang’s industrial areas in line with its
master planning vision.65
Box 26 – Penang SEZ Success Factors – Masterplan Approach – PDC Interview
The PDC identified that Penang’s key value added was the integrated masterplan approach PDC
have deployed in development of the FIZs and Industrial Estates. The provision of land for
industry, high quality infrastructure and supporting amenities and leisure uses to support the
working population are identified as key differentials for investors when choosing to invest
within Penang. For this reason, the PDC also observe that private industrial parks have not been
as popular as the PDC developed zones and estates given the PDCs reputation for masterplan
development and management of FIZs and Industrial Estates.
Throughout the development of FIZs and Industrial Estates within Penang, the PDC has retained
the role of ‘master developer’ but in some instances has developed Public Private Partnership
(PPP) arrangements with the private sector to deliver developments.
A recent example of this is the memorandum of understanding (MOU) between the PDC,
Temasek and the Economic Development Innovations Singapore Pte Ltd (EDIS) to establish a
new Business Processing Outsourcing Prime (BPO Prime) and the Penang International
Technology Park (PITP). To facilitate this development a new joint-venture company (JVCo) was
established.
InvestPenang was also established in 2004 to take on the role of industrial promotion from the
PDC. InvestPenang has a remit to explore the key factors which underpin investment within the
State and to strengthen the supply chain and industrial ecosystem which support MNCs within
the FIZs and Industrial Estates.
64 Interview with Mr Dato Cheri Singh (former chairman of PDC) and BuroHappold 2017.
65 Interview with Mr Dato Cheri Singh (former chairman of PDC) and BuroHappold 2017.
74
Box 27 – Penang SEZ Success Factors – Penang Investment Promotion – Interview with Former
PDC Members
Former PDC members involved in the establishment of the corporation and the Bayan Lepas FIZ identify
coordinated promotional activities as key to attracting foreign investment to SEZs. In the early 1970s
there were proactive efforts to market the FTZ to foreign investment through industry fairs and by
matchmaking SMEs with MNCs. These activities are identified as key factors in securing the original
eight anchor tenants within the Bayan Lepas FIZ.
The importance of a central organisation to plan, promote and manage the SEZ was also identified as a
key success factor by those involved in the zone’s initial phases of development. The members noted
that the existence of a central group always a coordinated proactive approach to investment promotion.
Box 28 – Penang SEZ Success Factors – Penang Competitive Advantage - InvestPenang

Interview
InvestPenang have a wide remit with regards to assisting investors with implementing projects and
implementing initiatives to improve the attractiveness of Peneng for investment. A key differential
identified by InvestPenang is their focus on the ‘liveability’ of Penang. The organisation frequently
works with federal government agencies on promotional activities including developing policies for
state housing, housing for international workforce and even elements such as international schools. The
organisation see these types of activities as key to attracting international investment within key target
sectors.
The organisation also acts as the voice between investors and the Federal Government to lobby on their
behalf with regard to national policies and incentives. This forms part of the organisation’s efforts in
‘post-investment’ care which was identified as a key component in ensuring that the continuing needs
of the industries and firms located within the zones are catered for.
5.2.5 Economic Profile

Sectoral Focus
The Penang SEZ currently has a strong manufacturing base in electronics, engineering,
automotive and medical devices focused on the following investment sectors within industry
and services.
Table 5-5 – Penang Sector Focus
Industry Services
Global Business Services (GBS) and Shared Services &
Electrical & Electronics
Outsourcing (SSO)
Electronic Manufacturing Services (EMS) IC Design and Development
Light Emitting Diodes (LED) ICT / Software Development and Creative Multimedia
Life Sciences / Medical Devices Principal Hub / Operational Headquarters
Aerospace / Avionics / Automotive Software Logistics and Transportation
Renewable Energy (RE) Healthcare and Wellness Services
International Education
International Education
Halal and Food Processing
Meeting, Incentives, Conferences and Exhibition (MICE)
High Value Tourism / Hospitality
Source: PDC (2017)
75
In addition, Penang is home to some of the world’s top EMS companies including Benchmark
Electronics, Flex, Jabil, Plexus and Sanmina-Sci. A number of the world’s largest LED producers
are also based in Penang such as Osram, Broadcom, Lumileds and CREE.
Penang has also attracted significant investment from the medical devices sector and is now
home to approximately one third of medical companies in Malaysia (55 out of a total of 190
companies). In 2016 Penang contributed over RM5 billion of total value of medical devices
export from Malaysia. Some of the major medical devices investors include St Jude Medical,
Braun, Ambu, Haemonetics, Toshiba, Agilent Technologies and Symmetry Medical.66
A recent focus for Penang has been promotion of investment from Global Business Services
(GBS), Shared Services and Outsourcing (SSO) and IT sectors. In total there are now more than
40 GBS and SSO companies operating in Penang of which the vast majority (~80%) are captive
based companies. It is estimated that in total more than 8,000 high value jobs have been created,
with the majority created within the financial and accounting, engineering and IT sectors. In
2017, Luxoft, a leading provider of software development services and innovative IT solutions
opened a Centre of Excellence (CoE) at Wawasan Open University and an ‘Automotive Software
University’ in Penang. The company will invest a total of $55.6 million over the next five years
in human capital and technology.
Figure 13 – Penang GBS / SSO / IT Sector Focus – %. Companies
Information Technology 20%

Software Development 16%
Finance & Accounting 13%
Process Design & Accounting 10%
Process Design & Development 8%
Customer Service Support 6%
Human Resource 6%
Information Technology Outsourcing 6%
Supply Chain Management 4%
Technical Services and Maintenance 3%
Business Process Outsourcing 3%
Procurement 2%
Big Data Analysis 1%
Service & Support Shared Services 1%
Global Procurement Services 1%
Source: Invest Penang Interviews (2017)
66 Invest Penang interview with BuroHappold 2017
76
Real Estate
The PDC offers real estate options including the sale of land to industrial investors as well as
‘ready-made’ industrial buildings and serviced land lease.
Box 29 – Penang SEZ Success Factors – The Role of PDC in Development and Operation –
Interview with PDC
The PDC identifies that its role has changed over time from simply selling industrial plots of land to
investors to developing land and buildings and leasing them to companies wishing to locate within
the FIZs and Industrial Estates. They identify that this ‘Build and Lease’ model of development has
attracted companies which don’t wish to invest large capital sums upfront in land and buildings but
which are keen to invest in production and R&D activities. This has been a key success factor in
attracting higher companies higher up the value chain engaged in R&D and global business service
activities.
Economic Performance
The headline economic performance of the Penang FIZs, FCZs and Industrial Estates is
summarised below in Table 5-6.
Table 5-6 – Penang SEZ - Economic Performance Summary
Economic Performance Indicator Performance Summary
Foreign Direct Investment It is estimated that the FIZs, FCZ and Industrial Estates have attracted a
($) total of $16 billion since 1999.67
Number of Companies within It is estimated that there are approximately 4,000 of which 10% are Multi-
SEZ national Companies (MNCs)68
In total it is estimated that the FIZs and Industrial Estates have created
Direct and Indirect Job more than 250,000 direct and indirect jobs.
Creation Between 2008 and 2016 it is estimated that 139,133 direct manufacturing
jobs were created within Penang’s FIZs and Industrial Estates.69
Export Values ($) $29 billion in 2016 which equates to approximately 14.5% of total exports
No data is collected at the FIZ/Industrial Estate level. However, data for

Total Annual Output ($)
manufacturing activity within the State of Penang shows that in 2013 total
67 It should be noted that whilst statistics are not available for the FIZs and Industrial Estates, consultation with key
stakeholders as part of interviews conducted in the site visit indicate that the majority of FDI within the manufacturing sector
is concentrated within one of the FIZs or Industrial Parks developed by PDC.
As previously noted, statistics are not available for the FIZs / Industrial Estates, however it is expected that the majority of
68
manufacturing firms and enterprises are located within these areas.

As previously noted, statistics are not available for the FIZs / Industrial Estates, however it is expected that the majority of
69
manufacturing jobs are located within these areas.
77
GDP was $6.3 billion. This equates to approximately 14% of total

manufacturing GDP within Malaysia as a whole.
It is important to note that interviews with PDC indicate that the vast
majority of manufacturing activity is contained within Penang’s FIZs and
Industrial Estates. This analysis therefore gives an indication of the
contribution Penang’s FIZs and Industrial Estates have on both regional and
national output within the manufacturing sector.
Source: Malaysian Investment Development Authority (MIDA) (2016), PDC Interviews (2017)
The success of Penang’s transformation from unemployment of approximately 16% in the 1960s
to approximately 2.1% in 2016 70 has been underpinned by rapid expansion of the
manufacturing sector and in particular the E&E sector.
In total over 300 multinational companies have located within Penang, with the majority falling
within the E&E sectors. These companies are predominantly from Japan, Taiwan and the United
States as shown below in Figure 14.
Figure 14 – Origin of Multi-national Companies within Penang
17%
3% 29%
10%
17% 24%
Japan Taiwan United States Singapore Germany Others
Source: Invest Penang Interviews (2017)
It is estimated that Penang contributes 80% of Malaysia’s total output from back-end
semiconductor activity, demonstrating the significant contribution it makes to the sector within
the national economy. The significance of this contribution is further demonstrated when it is
considered that Malaysia contributes 10% of back-end semi-conductor output globally making
70 Malaysia Statistics Centre, (2016) Principal Statistics of the Labour Force, Pulau Pinang, 1982-2016.
78
Penang one of the world’s leading locations for micro-electronics assembly, packaging and
testing. This has attracted the likes of Intel and AMD to Penang’s industrial zones.71
Penang’s ability to attract multi-national investment has enabled it to undergo significant

economic transformation since the adoption of the Free Zone policy in the 1970s. This is
illustrated below in Figure 15 and demonstrates the rapid economic growth in Penang between
1970 and 1990.
Figure 15 – Economic Growth within PDC Industrial Zones
No. of Factories in PDC Industrial Parks

900
800
700
600
+2.6% CAGR
500
400
300 +14.1% CAGR
200
100
0
1970 1990 2016
Total Employment (000s)

300
250
200
150
+3.5% CAGR
100
50 +19.2% CAGR
0
1970 1990 2016
Source: PDC Interviews 2017. BuroHappold Analysis.
71 Invest Penang Interview with BuroHappold 2017
79
It can be seen that between the establishment of the Beyan Lepas FTZ in the 1970s and the 1990s
there was a very strong growth in enterprises locating within the FTZs of approximately 14%
CAGR. Between the 1990s and 2016 growth in both enterprises and employment has continued
but at a significantly smaller level as the industrial estates reached occupancy and operations
were transformed into higher value added activities away from basic assembly functions.
5.2.5.1 Relationship to Regional and National Economy
As shown in Figure 16 the Penang economy typically outperforms the national average, but
given its strong dependence on global manufacturing activity there was a sharp downturn in
growth between 2008 and 2009. Following the crisis, Penang’s growth has improved and in
2015 was again outperforming the national average. Penang’s strong manufacturing base
centred on the electronics industries clustered within its FIZs and industrial estates help
support this growth.
Figure 16 - GDP Annual Growth Rates – Penang and Malaysia
15.0
10.8 10.4
10.0
6.5 6.3 7.4 7.4
5.6 5.6 6.0 6.2
5.5 5.2
4.8 5.0 4.6 4.7 5.0
5.0 3.9
0.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-1.5
-5.0
-10.0
-10.5
-15.0
Penang Malaysia
Source: Department for Statistics Malaysia. Note: Growth rates for 2006-2010 are based on 2005 constant prices whilst growth
rates for 2011-2015 are based on 2010 constant prices
80
Data indicates that Penang currently accounts for 7% of national GDP but when the
manufacturing sector is isolated the state accounts for 14% of total manufacturing GDP
nationally.72
To examine the effect of the Penang FTZs on the Malaysia economy a number of indicators have
been examined to illustrate the economic performance of the zone in:
 Increasing GDP performance;

 Increasing export values; and
 Attracting further FDI inflows.
This analysis is presented below in Figure 17, Figure 18 and Figure 19.
Figure 17 - Malaysian GDP per Capita (constant $)
12000
10000
8000
6000
4000 Bayan Lepas FTZ
2000
0
1984
2006
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2008
2010
2012
2014
2016
Source: World Bank (2017) World Bank Open Data. Available from: https://data.worldbank.org/
72 Statistics Centre Malaysia (2015) Malaysia Economic Statistics – National Accounts.
81
Figure 18 - Malaysian Export Values ($Bn)
Malaysia-Export Values ($)

300
250
200
150
100
Bayan Lepas FTZ
50
0
1988
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Figure 19 - Malaysian FDI – Net Inflows ($Bn)
16
14
12
10
4
Bayan Lepas FTZ
2
The analysis illustrates that there is a relationship between increases in Malaysian GDP per
capita and export values, particularly from the start of the 1990s when the Penang FTZs and
Industrial Estates began to move from simple assembly functions to higher value added
component manufacturing and R&D activities.
82
The relationship between the Penang FIZs and net inflows of FDI is less clear but there is a
noticeable increase in FDI inflows between 1972 and 1974 which coincided with the arrival of
the anchor tenants in Penang and the emergence of the electronics industry in Penang.73
Whilst it should be caveated that this growth cannot be wholly attributable to Penang’s FIZs, the
Malaysian electronics industry developed strongly over this period, with $12.7 billion over the
period 1996 to 2005,74 the majority of which were made within FIZs in Penang and Selangor.
Given this industry has been a significant contributor to Malaysian exports, this clearly
demonstrates the importance of these zones over this time period in localising inward
investments and promoting export activities within the E&E sector.
Box 30 – Penang SEZ Success Factors – Economic Strategy – PDC Interview
The PDC make reference for the need to ensure that Penang’s economic resilience is
considered when implementing economic development strategies and defining the sectoral
focus for the FIZs and Industrial Estates. The PDC have undertaken a number of studies to
examine how Penang can diversify its economic base to reduce its reliance on the electrics
and electronics sector. The PDC identify recent projects such as the Bayan Baru Business
Improvement Distict which will include a new BPO facility as evidence of how they have
attempted to attract new sectors and industries to Penang. Diversification of the economic
base is identified as a key factor in ensuring Penang’s future economic success.
Skills and Training
The Penang Skills Development Centre (PSDC) was established in 1989 and was the first
industry led skills training centre to be established within Malaysia. The centre operates as a not
for profit organisation with a mission to pool resources amongst the 4 free trade zones and 4
industrial estate within Penang providing up-to-date industry specific training and educational
programmes in support of identified operational requirements.75
The PSDC is now recognised as a world model for partnerships between government, academia
and industry. It serves as a key broker between the needs of industry and higher education
73Whilst this analysis has attempted to demonstrate the economic effects of the Penang FTZs on the domestic economy it
should be caveated that there may be a number of economic reasons for the performance of the indicators analyzed. A more
detailed econometric analysis would be required to isolate the exact impact of the Penang FTZs on the indicators observed.
74 Chai, Y and Im, O (2009) The Development of Free Industrial Zones – the Malaysian Experience.
75Penang Skills Development Centre (2017) Available from: http://www.psdc.org.my/about-us/category-1/company-
profile/
83
institutions and other training providers, helping to identify the skills and training needs of the
business community.
The PSDC was initially established in collaboration between the PDC and representatives of Intel
and Motorola who helped to coordinate and establish the centre. The PDC provided the initial
building and the land for the centre and responsibility of a management council which was
formed of private sector representatives. The Management Council is currently comprised of 11
elected, 4 appointed office bearers and 9 ex-officio members.76
Box 31 – Penang SEZ Success Factors – Skills and Industry – Interviews with Former Members
of PDC
Interviews with former members of the PDC involved in its establishment, identify that the
close collaboration of the PDC with industry partners has been key to the success of the
Penang Skills Development Centre. Industry funding and involvement within the
establishment and operation of the centre has enabled Penang to foster a highly skilled
workforce which directly meets identified needs of MNCs and industry.
Those interviewed identify that the presence of a highly skilled workforce has been a key
factor in retaining electric and electronic MNCs throughout the evolution of the Penang FIZs
and the movement up the value chain into higher value activities such as research and
development and global business services. The ability of Penang to integrate its domestic
workforce into higher value activities and in particular managerial and technical positions
has embedded MNCs and supporting industries within Penang’s FIZs.
The PSDC is 80% financed by the private sector with 149 member firms which represents 60%
of the Penang workforce. Of these member firms, 32% are electronic companies, 22%
engineering and 19% manufacturing.77
To date the PSDC has trained over 200,000 participants through more than 10,000 courses since
its inception in 1989. It has pioneered local industry development initiatives, assisted in the
input and formulation of national policies pertaining to human capital development and has
contributed directly to the Malaysian workforce transformation initiatives.
In 2016 the Centre executed its Industry 4.0 initiative to support the new phase of industrial
development within Malaysia. As part of this initiative the PSDC will aim to become a centre of
76 PDC interview with BuroHappold 2017

77 OECD (2011) Higher Education in Regional and City Development: State of Penang, Malaysia
84
excellence for Industry 4.0 within Penang and Malaysia by providing leadership, a platform for
best practice learning and talent development support through Shared Services facilities to meet
the current needs and demands of industry.78
5.2.6 Summary Success Factors

Governance and Regulatory Framework
5.2.6.1 Strong vision underpinned the Island of Penang’s growth potential with political support
The vision for Penang was developed through strong state government support led by Chief
Minister Lim Chong Eu who aligned job creation policy objectives with emerging opportunities
for international specialization through links to global production networks. This strong
political will was attractive to initial investors who were attracted by well-designed investment
promotion strategies (including FTZ status), infrastructure development, skills development
and links between local and foreign firms to identify requirements.
The long tenure of the Chief Minister and his management team (for over 20 years) also helped
to foster a sense of developer confidence with regards to policy direction and political certainty.
5.2.6.2 Establishment of a central entity as developer and operator of the FIZ and Industrial Estates
The PDC has been very successful at developing and operating the FIZs and Industrial Estates.
The corporation was established prior to the creation of the first Bayan Lepas FIZ and was
tasked with the responsibility of driving forward socio-economic growth, urban redevelopment,
affordable housing and promotional and investment activities.
The Corporation’s key successes have stemmed from its strategy to plan and develop industrial
areas with high quality infrastructure and facilities, supported by township development
including affordable housing.
The autonomy of the statutory body is also key to its ability to perform its functions effectively
as the central point of strategy formulation, implementation and coordination. This enabled the
PDC to foster a strong business community with a firm commitment to FDI promotion and an
impression of very easy conditions for conducting business.
The availability of land within the early stages of FIZ development was also identified as a key
factor in attracting MNCs to locate within Penang. 79 Ownership of the land by PDC gave
78 Interview with InvestPenang, PDC and BuroHappold 2017

79 Interview with PDC’s original chairman, Mr Dato Cheri Singh
85
guarantees and certainty to investors that land was available for development and the ease of
agreeing leases or purchase of land differentiated Penang from competitor locations.80
5.2.6.3 The PDC established a process of ‘post-investment’ care to ensure that business needs,
demands and concerns are continually met
The PDC has established institutional mechanisms to maintain close links with MNCs within the
Penang FIZ and Industrial Estates and thus allows the PDC to maintain a clear understanding of
investor requirements. This allows the corporation to be flexible to changing investment
climates and to address investor needs and requirements on a continual basis.
5.2.6.4 Establishment of a separate investment promotion agency
In 2005 a restructuring exercise was undertaken in order to streamline the PDC. This resulted
in the Industrial Division of the PDC being taken over by InvestPenang whose responsibilities
were specified as industrial and service sector promotion.
The creation of InvestPenang allowed the PDC to focus primarily on the provision and setting
up of industrial estates, infrastructure, township development and sale of industrial land.
Financial and Economic Climate
5.2.6.5 Strong anchor tenants – the ‘Eight Samurai’
From the outset, the PDC identified that attracting strong MNC anchor tenants would be crucial
to the success of the zone. Focusing on the electronics sector the PDC managed to attract
National Semiconductor (US), Advanced Micro Devices and Intel in 1971. In the following years
between 1972 and 1975 a further five MNCs established themselves in Penang; Osrum
(German), Hewlett Packard (US), Bosch (German), Hitatchi (Japanese) and Clarion (Japanese).
Once the ‘Eight Samurai’ were established in Penang, a network of ancillary industries began to
emerge to meet their input requirements resulting in the rapid growth of local tooling and
equipment manufacturing firms.
5.2.6.6 Ability to upgrade value added manufacturing activities and retain anchor tenants
A key success factor in Penang’s growth has been the ability to retain key anchor tenants (of the
eight samurai, seven still remain) and to facilitate structural transportation of the export
activities. Driven by domestic cost pressures (such as increasing wages and rents) there was a
shift away from simple assembly processes towards component design and testing as well as
regional and global headquarter functions. Activities also include corporate and financial
80 Interview with Mr Dato Cheri Singh and BuroHappold 2017
86
planning, R&D, product design and tooling, sales and marketing. Penang is also used for global
training and skill enhancement programmes.
5.2.6.7 Diversification of manufacturing activities and industries
In addition to the electronics industry, Penang has managed to diversify its production base into
complementary electronic product lines such as medical services and equipment, light emitting
diodes (LEDs) and photovoltaic design and development. This has been enabled through the
strong cluster of electronic manufacturing firms and a global reputation for a skilled workforce
adept within these industries.
5.2.6.8 Establishing backward linkages between MNCs and domestic economy
The PDC has been successful at fostering local sub-contracting capacity and in establishing
relationships between MNCs and domestic companies. The PDC maintains a database of local
suppliers which it uses to provide matchmaking services with MNCs. Knowledge of local supply
chain capabilities has been a crucial element in fostering backward linkages and encouraging
technology transfer.
Skills and Training
5.2.6.9 Establishment of the PSDC
Prior to the PSDC, the PDC were engaged in conducting vocational training programmes to meet
demand for skilled labour from MNCs. The PSDC was then formed in the late 1980s in close
collaboration with MNCs to meet targeted skills and training requirements. The centre has also
received strong support from the federal government which offer tax deductions for MNC
contributions to PSDC training schemes and their own skills and training development
programmes.
5.2.6.10 Development of strong backward skills linkages with the domestic economy
The presence of foreign MNCs within Penang have had a significant impact on human capital
development within the economy. This is evident through the decision of MNCs within Penang
to locate high value activities and headquarter functions within global production networks to
the FIZs and Industrial Estates. It is estimated that only 8% of CEOS in foreign companies in
Penang are foreigners and many MNCs utilitse the managerial and technological expertise of
their Penang operations when expanding to other countries.81
8181 Athukorala, P (2012) Growing with Global Production Sharing: The Tale of Penang Export Hub, Malaysia.
87
5.2.7 Summary Lessons Learnt

 Development of a strong political vision is key to supporting the development of the SEZ
programme and attracting investment. It is observed that a strong vision can lead to
more effective promotional efforts, in this case through the creation of the PDC which
obtained a degree of autonomy from the Federal government allowing it to create
bespoke incentive packages.
 Investment in skills and training development allowed the PDC to firstly attract a
number of anchor tenants in the inception of the SEZ programme but also to retain these
tenants as the nature of their operations shifted from basic assembly to higher valued
added activities. This is encapsulated by the creation of a bespoke skills and training
centre in collaboration with the private sector and the strong representation of
Malaysians within managerial and technical positions within existing MNCs today.
88
5.3 Case Study 2: Jurong SEZ, Singapore

Singapore has a total of 10 Free Trade Zones (FTZs) in five geographical areas operated by three
FTZ authorities. The focus of this case study is on the Jurong Island FTZ which is operated by
Jurong Port Pte Ltd.
Jurong Island industrial zone and freeport are located in the south of Singapore. They are
connected together by the Jurong Highway and are located approximately 5 km from each other.
The Jurong FTZ is located around the Jurong Port, incorporating the industrial estates of Jurong
Town and the adjacent Jurong Island.
Jurong Island itself is an artificial island, formed by an amalgamation of seven smaller islands,
through a series of land reclamation projects between 1995 and 2009.
Jurong port and free zones are highly acclaimed as some of the best in the Asia Pacific region.
Jurong Island is a petro chemical focused zone that is supported by world class port facilities, it
consist of over 100 mainly large firms including Shell with a total investment of approximately
USD42 billon.
Table 5-7 - Jurong SEZ Overview
Zone Primary Activities
Established Late 1990s
Area ~ 3,000 ha
No. of firms on-site >100
Authority in Charge Singapore Economic and Development Board (SEDB)
89
Figure 20 – Jurong Island and Freeport - Overview
Source: Jurong Island, Singapore Business Review 2009
Singapore is a free port and as such has attractive excise and import duty conditions. The
country’s free trade policy is at the core of its international trade policy and virtually all goods
which enter Singapore are duty-free.
FTZs were established in Singapore in the 1960s to facilitate entrepot trade in dutiable goods.82
The FTZs in Singapore were primarily developed for transhipment cargos and they provide 72
hour free storage for import/export of conventional and containerized cargo and 14 day free
storage for transhipment / re-export cargo.
In addition to FTZs, Singapore also adopted distriparks and warehouse schemes including
bonded warehouses and licensed warehouses. Bonded warehouses were formulated as an
extension of FTZs and allows imported goods to be removed from the FTZ and stored in a
bonded warehouse allowing suspension of Goods and Service Tax (GST).
Licensed warehouses allow a designated area to store dutiable goods such as liquor, tobacco,
motor vehicles and petroleum with the duty and GST payable suspended.
82 KMI (2005) Free Trade Zone and Port Hinterland Development. UN ESCAP, KMI.
90
Development of Jurong Port and Industrial Zone
The development of Jurong Port and Industrial Zone commenced in 1961 with ambitions to
address growing unemployment and ambitions for industrialisation. Jurong was selected as
suitable for port development given its natural deep-water harbour.
The Port project was developed by the Singapore Economic Development Board (EDB) and was
developed between 1963 and 1965. In 1963, the Prime Minister Lee Kuan Yew launched the
development work for the $14 million Jurong Wharf which was designed to allow the largest
ocean-going vessels to berth in the Port.
The Port project was completed in 1966 with a total of five deep water berths. In 1967 work was
then undertaken to convert Jurong harbour into a full industrial port which could accommodate
bulk handling equipment. The EDB also developed Jurong Industrial Estate over this period and
provided factory sites within the estate for either purchase or rental. The industrial estate was
equipped with all amenities and road and rail access.
Jurong Island and other free zones in the area benefit from proximity to one of the region’s
largest ports thus can exploit the advantage of easy access to global connectivity and markets.
Singapore is situated amongst other large south Asian export competitors, such as: Malaysia,
Indonesia and the Philippines. The creation of Jurong Port cemented Singapore’s claim as a
regional and global trading entity. This allowed it to compete the lower value semi-
manufactured goods markets and progressively climb up the value chain to the position they are
in now.
Changi International Airport is Singapore’s main hub airport which is approx.49 km away, and
includes the Airport Logistics Park of Singapore (ALPS), the airports Free Trade Zone. This can
be accessed through Singapore’s modern road infrastructure. Numerous cargo operators fly
from here with destinations in the wider region, the MENA and Europe.
Jurong Island is located to the southwest of the main island of Singapore and is linked to the
main island by a 2.3km causeway known as the Jurong Island Highway which was opened in
1999. The spatial components which make up the Jurong FTZ are outlined in Table 5-8 below.
91
Table 5-8 – Jurong FTZ – Spatial Components
Component Description
The main gateway terminal to and from Singapore Jurong Port. It handled
approximately 17.33 million tonnes and 320,000 twenty-foot equivalent
units (TEUs) of containers in 2014. The port also includes 178,000 m2 of
Jurong Port
FTZ warehousing facilities, has capacity to load and unload dry and liquid
bulk cargo, and contains a dedicated common user facility to deal with
cement.
The Park is 80ha and was developed by the JTC Corporation in 2003. This
facility is dedicated to transhipment and breakbulk operations for bulk
Bayan LogisPark
liquid petroleum and petrochemical products supporting manufacturers in
Singapore and within the Asian chemicals industry.
A world-class manufacturing hub, hosting process development and

manufacturing operations of major pharmaceutical, biotechnology and
Tuas Biomedical
medical technology companies. Companies located here are able to
Park
benefit from access to local highly skilled employees, research
expertise, and good air and sea logistics.83
The Park incorporates clusters of various aerospace industry businesses

including maintenance, repair and overhaul of aircraft and components;
Seletar Aerospace
manufacturing and assembly of aircraft engines and components; business
Park
and general aviation activities; as well as training and research &
development.
Offshore Marine The Offshore Marine Centre area is focused on clustering marine and
Centre offshore industries up and down the value chain.
The Park focuses on the clustering of high value research, consultancy

Clean-tech Park and manufacture of cutting edge sustainable technology. Initially
focused on showcasing innovative resource efficiency technologies it
has since attracted leading-edge public and private R&D organisations
83 http://www.jtc.gov.sg/industrial-land-and-space/pages/tuas-biomedical-park.aspx
92
Component Description
such as the Nanyang Environment & Water Research Institute (NEWRI),

the Energy Research Institute @ NTU (ERI@N), and private research
companies like DHI Water & Environment (S) Pte Ltd that specialises in
water and environmental research and consultancy.84
R&D park designed for the sciences (medical, IT, engineering) focusing
One North
on an involvement of the knowledge economy.
An autonomous national research institute under A*STAR (Agency for

Institute of
Science, Technology and Research). It was created to undertake
Chemical and
exploratory research, process development and optimisation, and run
Engineering
pilot-scale projects to support the top energy and chemical companies
Sciences (ICES)
located nearby. 85

The Singapore Free Trade Zones Act was passed on 1st September 1969, of which Jurong Port
was the first FTZ. The FTZ Act was initially passed to support the development of Jurong
Industrial Zone.
The Act covers the five FTZs at Port of Singapore, Jurong Port, Sembawang Wharves, Pasir
Panjang Wharves and Airport Logistics Park of Singapore.
The FTZ Act specifies that:
 Goods of any description, except those specifically prohibited by law, may be bought
into a free trade zone, be removed from the free trade zone, destroyed or sent into
customs territory or into another free trade zone in the original packaging or otherwise
and, unless otherwise distributed, sorted, graded, cleaned, mixed or otherwise
manipulated, or manufactured. However, when the goods are exported from a free trade
zone into customs territory, standard customs procedures apply; and
84 http://www.jtc.gov.sg/our-partnerships/Pages/case-studies.aspx
85 https://www.edb.gov.sg/content/edb/en/industries/industries/chemicals.html
93
 Any activity carried out within the free trade zone must be notified to its authority in
order to obtain permission; and
 The authority shall permit customs offices to be established in a free trade zone and
shall provide adequate facilities for officers of customs whose duties require their
presence within or at the perimeter of the zone.
JTC adopts a light touch approach to administering activities in the zones. In order to qualify, a
firm must adhere to a set of qualifying criteria which include, but are not limited to the following:
Table 5-9 - Jurong Qualifying Criteria
Criteria Qualifying Characteristics
Plant and machinery - A company locating will have to

declare their overall investment figures and state a
reason why they are that value
Fixed Asset Investment Buildings and civil works (B&C) - A company will also
have to meet the minimum buildings and civil
requirements. This includes a set of design standards.
Firms will have to provide a set of cost figures
indicating the expected building standard.
Companies are required to declare their plot ratio and

Plot Ratio floor area requirements, these vary depending on site
usage.
The firms will be considered on the value added, this is

the total difference between the total output and total
Value Added
operating costs. Firms who project a higher value added
production will have a greater chance of entry.
The credibility and quality of the business proposal will

Credibility of Firms Business Proposal
benefit their application process.
Source: JTC (2017) Policies for Industrialists
Incentives
The key incentives offered to firms locating inside the zone include:
 Jurong port- no taxes on the import , export or re-export of goods;

 Investor is liable for 5 year tax holiday then a 5 year 10% corporation tax agreement;
and
94
 Selected industries get up to 50% investment allowance.
The plug and play model provides all the infrastructure for a specific industrial activity,
therefore different units are leased at different prices depending on the industrial zone and the
quality of the facilities. JTC tender the standard factory launch quarterly, these are launched on
a lease or tenancy basis. The aforementioned set up criteria apply. The prices exclude any
service of energy and water these services are available for supply at competitive rates.
Regional Headquarters Programme
Singapore introduced the programme to provide appropriate incentives according to the level
of commitment the headquarters put into Singapore. 86 The Headquarters Programme offers
two incentive packages commensurate with the scale and value of the headquarters operation.
The Regional Headquarters Award offers a concessionary tax rate of 15 per cent for 3 years plus
up to an additional 2 years based on incremental qualifying income from abroad. If a company
qualified for a regional headquarters award satisfies all the minimum requirements by year
three of the incentive period, it will enjoy the 15 per cent concessionary tax rate for an additional
two years on qualifying income.87
Companies with headquarters in Singapore include manufacturers like Seagate, NEC, Matsushita
Electronics, Pall Filtration, Bax Global and Siemens Medical. Asian MNCs (multinational
companies) which conduct their global businesses from Singapore headquarters include Indian-
based companies like the Scandent Group, Tata Consultancy, and Singapore System Access (EDB,
online).88

The Singapore Economic Development Board (SEDB), a central government department,
founded Jurong Island and Port which in turn established the semi-autonomous Jurong Town
Corporation (JTC) in order to administer the port and surrounding industrial zones.
The SEDB’s goal is to catalyse sustainable economic development in Singapore. The JTC’s remit
is to manage and build infrastructure that support the goals of Jurong and Singapore, this
includes managing industrial zones and creating industrial zones that support sectoral
86United Nations. Economic and Social Commission for Asia and the Pacific (2005) Recent developments in FTZs and port
hinterlands in Asia and Europe, Chapter 4, p. 48
87 ibid
88United Nations. Economic and Social Commission for Asia and the Pacific (2005) Recent developments in FTZs and port
hinterlands in Asia and Europe, Chapter 4, p. 48
95
integration and the creation of jobs. JTC deals with the administration of new firms entering the
zone as well as current firms.
At a high level, the organisational structure can be described by the organogram below:
Figure 21 – Jurong Island and Freeport Organogram
Singapore Economic
Development Board
(SEDB)
Jurong Town
Corporation
Jurong Island Jurong Port
Jurong Island Jurong Port

Administrative and Administrative and
Management Bodies Management Bodies

Jurong Island has acted as a catalyst for other economic activities in Singapore. More than 400
companies trading in petroleum and petroleum products have since been established in
Singapore, attracted in part by the storage capacity available, and the financial incentives as
mentioned in Section 5.3.3.89 The presence of many petrochemical company headquarters on
Jurong Island has, in turn, generated activity in subsidiary businesses, such as marketing and
sales, research and development, logistics, and other professional services.
Jurong Island has established itself as Singapore’s energy and chemical hub and has attracted
investment from 95 leading petroleum, petrochemical, speciality chemical and supporting
companies such as BASF, Lanxess, Exxonmobil, Dupont, Mitsui Chemical, Chevron Texaco, Shell,
89 http://www.businesstimes.com.sg/energy-commodities/special-feature-jurong-island/falling-value-and-output-raise-
questions-about
96
Sumitomo Chemical, CIBA and Huntsman. Within the ‘Chemical Hub’ there are now
approximately 8,000 employees and it has attracted over SGD 30 billion of fixed asset
investments.90
Sectoral Focus
The Jurong Port was set up in in the 1960s with the support of industrial areas that were
producing labour intensive products for local consumption. With the support of the port, Jurong
industrial zone became export orientated. During the 1980s, the production shifted to higher
value added goods. This coincided with the opening and rebranding of zones, including the
petrochemical based Jurong Island. Currently, the industrial zones, with the support of Jurong
port, produce very high value goods. Additionally, Jurong port has engaged in the knowledge
economy by establishing a multi-disciplinary consultancy group known as Jurong International.
This shift to high value technologically advanced activities has diversified Singapore’s export
portfolio and given it an advantage over its regional competitors.
A clustering of industries encouraged by the set-up of zones designated for specific activities has
allowed for sectoral integration between firms up and down value chains. A ‘plug and play’
model has been applied, all of the buildings and infrastructure have been developed, and firms
simply have to move in.
Jurong Island now has the world’s largest petrochemical (plastics, petroleum, chemicals)
industries operating within it, bringing quality high value employment. Jurong is also in the top
10 petrochemical hubs. Many of the world’s leading energy and chemical companies, have
established a presence on Jurong Island, including BASF, ExxonMobil, Lanxess, Mitsui Chemicals,
Shell and Sumitomo Chemicals. Presently, Jurong Island has successfully attracted investments
in excess of S$35 billion.91
Real Estate
Industrial facilities provided by JTC include:
 Ready-built standard factories, ranging in size from 944m² to 4 200m², providing a

functional layout for the different needs of customers;
 Flatted factories, located in 35 of the industrial parks in Singapore. These industries are
designed to integrate marketing, management, production, storage and other industrial
facilities, with sufficient open production areas, lifts and loading bays; and
 Stack-up factories.
90 DE International (2014) Singapore – Oil and Petrochemical Industry

91 https://www.edb.gov.sg/content/edb/en/industries/industries/chemicals.html
97
The economic performance of the Jurong Island FTZ is summarised below in Table 5-10.
Table 5-10 – Jurong Island FTZ Economic Performance Summary
>$37 billion from companies such as BASF, ExxonMobil,

Lanxess, Mitsui Chemicals, Shell and Sumitomo
Chemicals92
Foreign Direct Investment ($)
In 2015 it was recorded that Jurong Island attracted a
total of $890 million in new investments from 11
different companies.93
Number of Companies within SEZ >100
Direct and Indirect Job Creation >8,000
Jurong Island generates approximately $2.4 billion USD

Export Values ($)
in petrochemical exports annually
Whilst no statistics are available for Jurong Island FTZ,

Total Annual Output ($) the chemicals industry contributed approximately $49
billion to the Singapore economy in 2016.
Since its inception Jurong Island has grown to be considered one of the world’s largest and fully
integrated petro-chemical parks. In total it can be seen that the Jurong Island FTZ has now
attracted over 100 enterprises since it was established generating in excess of 8,000 new jobs.
Whilst no data is available for Jurong Island FTZ, the use of statistical data for the petro-
chemicals industry within Singapore can help provide an indication of the FTZ’s contribution to
the national economy, given it holds a significant proportion of Singapore’s chemicals industry.
The development of Jurong Island has enabled Singapore to achieve the vision of increasing
industrial production and has resulted in the development of a chemical hub which now
constitutes over one quarter of domestic exports of major non-oil products. 94 As Figure 22
92 EDB (2016) Energy and Chemicals 2016 – Year in Review

93 JTC, (2015) JTC Corporation Annual Report FY2015.
94 Singapore Statistics (2017) Domestic Exports of Major Non-Oil Products, Monthly
98
demonstrates, exports of chemical products has increased significantly since the establishment
of Jurong Island in the late 90s.
Figure 22 - Domestic Exports of Chemical Products in Singapore – 1997 to 2016 ($m)
60,000
50,000
40,000
30,000
20,000
10,000
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Singapore Statistics (2017) Domestic Exports of Major Non-Oil Products, Monthly
In terms of total output it can be seen that the chemical industry within Singapore contributed
approximately $49 billion in output to the national economy in 2016, comprising approximately
one quarter of total manufacturing output, an increase from approximately 20% in 2000.95
In addition it can be seen that FDI within the chemical and chemical products sector accounted
for 8% of total manufacturing FDI within Singapore in 2015, and approximately 2% of national
FDI in-flows. Whilst this is a relatively modest contribution, it should be noted that the industry
only accounts for 4% of total manufacturing employment and 3% of total enterprises.96
5.3.5.1 Relationship with National Economy
To examine the effect of the Jurong SEZ on the Singapore economy a number of indicators have
95 Singapore Statistics (2016) Total Output by Industry Cluster, Annual.

96Singapore Statistics (2016) Manufacturing Employment by Industry Cluster / Manufacturing Establishments by Industry
Cluster.
99

This analysis is presented below in Figure 23 and Figure 24.

Figure 23 - Singapore GDP per Capita (constant $)
60000
50000
40000
Jurong Island SEZ
30000
20000
10000
0
1974
2000
1960
1962
1964
1966
1968
1970
1972
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2002
2004
2006
2008
2010
2012
2014
2016
Figure 24 - Singapore Export Values ($Bn)
700
600
500
400
300
Jurong Island SEZ
200
100
0
1960
1998
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
2000
2002
2004
2006
2008
2010
2012
2014
2016
The analysis presented above indicates that the economic performance of Singapore with
regards to GDP per capita growth and exports improved considerably following the opening of
100
the Jurong Island SEZ. The opening and establishment of the Jurong SEZ led to creation of one of
the leading global maritime multipurpose ports with the capacity to hand bulk, general and
containerized cargo as well as petrochemical production. This has helped to drive the economic
performance of the state.97
The key strategies contributing to Jurong Island’s success can be summarized as follows.
Governance
5.3.6.1 Strong Vision and Government Support
The development of the FTZ occurred with very close cooperation with Singapore’s
Government.
The Jurong Island Version 2.0 initiative was recently developed by government agencies such as
EDB, JTC, PUB (Singapore’s National Water Agency) and EMA (Energy Market Authority) in
order to ensure the long-term competitiveness and sustainable growth of Jurong Island. 98 The
vision aims to focus on five areas; water, environment, energy, alternative feedstock options and
transport and logistics. As part of this initiative Jurong Island will introduce shared pipelines,
utilities and logistics to enhance the ‘plug and play’ model which currently exists.
5.3.6.2 Effective marking and promotional activities
Strong marketing campaigns were developed to target international firms, supported with a
competitive incentive programme.
5.3.6.3 Establishment of Free Trade Agreements (FTAs)
The government has been proactive in opening doors for businesses through bilateral and multi-
lateral initiatives such as FTAs. The government has concluded FTAs with the USA, ASEAN,
Australia and New Zealand, Kingdom of Jordan, China, India, Japan, South Korea, Costa Rica,
Switzerland, Liechtenstein, Norway and Iceland, GCC, Panama, Peru with Brunei and Chile.
5.3.6.4 Government actively supports innovation and research and development activities
The Singapore Government has focused on promoting innovation within the offshore sector and
to support this has established a number of high quality research and development institutions
to develop the sector further on Jurong Island. This includes the:
97Whilst this analysis has attempted to demonstrate the economic effects of the Jurong SEZ on the domestic economy it should
be caveated that there may be a number of economic reasons for the performance of the indicators analyzed. A more detailed
econometric analysis would be required to isolate the exact impact of the Jurong SEZ on the indicators analysed.
98 http://www.multinine.com.sg/CCDS%20Editorial%202013_JTC%20Corporation.pdf
101
 Maritime Research Centre (MRC) – initiative by the Maritime and Port Authority of
Singapore (MPA) and the Nanyang Technological University (NTU) in 2001;
 The Centre for Offshore Research and Engineering (CORE), an initiative by the
Singapore Development Board (SDB) and the National University of Singapore (NUS) in
2003; and
 The Marine and Offshore Technology Centre of Innovation by SPRING Singapore and
Ngee Ann Polytechnic (NP) in 2007.
Infrastructure
5.3.6.5 Strong provision of physical infrastructure to facilitate industrial development
Jurong Island has developed world class infrastructure and connectivity which has allowed it to
develop key links to major trading hubs and manufacturing bases by both air and sea globally.
As a consequence major shipping and logistics providers have chosen to locate their regional
headquarters within Singapore.
5.3.6.6 Innovative solutions to utilities provision and ‘plug and play’ model of operation
Jurong Island has developed a system of industry integration which allows companies to ‘buy’
and ‘sell’ feedstock and products allowing the output of one plant to deliver inputs for
neighbouring plants. In addition third party providers enable companies to outsource functions
like waste water treatment, steam or hydrogen as well as storage requirements to support
manufacturing plants. This integration of both utilities and logistics functions has enabled
Jurong to create production synergies and to improve cost efficiencies by providing for
integrated industrial activities.
5.3.6.7 Outsourcing of Infrastructure Operations
Companies within Jurong Island are able to outsource non-core manufacturing operations such
as utilities provision, waste treatment, logistics and storage. This has translated into lowering of
fixed capital investments by 10-15% within the Jurong Island zone and has therefore increased
the attractiveness of investment by generating a better return on capital deployment.
5.3.6.8 Responsiveness of industry to meet market conditions and support of the zone to
accommodate change
There have been three distinct phases of development, with industries on Jurong Island evolving
to position themselves competitively in regards to changing global trends. The FTZ has shifted
its focus from heavy industry, to technology, and then knowledge-intensive activities.
102
The Island has incorporated both industrial and commercial developments as a means of
diversifying economic activity in the FTZ, in order to address shortfalls in Singapore’s economy
99

 Jurong Island has started to develop innovative infrastructure solutions to increase its
attractiveness to investors. This includes new ‘plug and play’ models of operation which
has improved cost efficiencies and created production synergies for enterprises located
within the island.
 The Singapore government continues to support the development of Jurong Island
through initiatives such as Jurong Island Version 2.0. This helps to improve the
attractiveness of the island as a place for investment as it outlines a clear strategy for
development, particularly with regards to new technologies and infrastructure as stated
above.
99 http://lbms03.cityu.edu.hk/oaps/is2009-6930-dmy438.pdf
103
5.4 Case Study 3: Tanger Med SEZ, Morocco

The Tanger Med Zones (TMZ) is an ecosystem of diverse economic and industrial activities. This
unique ecosystem is one of the key reasons for its rapid success since the inception of the project
in 2003.
The TMZ project involves the gradual and long-term implementation of business parks,
industrial, logistics and tertiary activities in the hinterland of the Tangier port and in the wider
area around the Strait of Gibraltar. The Strait’s intrinsic competitive advantages offer a platform
for rapid economic development, which the TMZs have taken advantage of to achieve growth.
Table 5-11 – Tanger Med Zones
SEZ Typology Free Trade Zone
Established 2003
Area 3,000 ha
No. of firms onsite >750
No. of jobs created ~65,000
Authority-in-charge Tanger Med Special Agency (TMSA)
The TMZs, coupled with strategic infrastructure consist of a number of individual zones. A
description of these zones and their associated activities is provided below:
Table 5-12 – Tanger Med Zones Overview
Zone Key Components Primary Activities
Port Tanger Med 1
Port Tanger Med 2 (currently under
Tanger Med Port
construction)
Logistics Free Logistics and post-processing activities
Port Tanger Med Passengers
Zone
Zone Franche Logistique (Medhub)
Tanger Med Port Centre
Automotive, aeronautics, electronics, textiles
Tanger Free Zone (TFZ)
and agro-business
Automotive, aeronautic and renewable
Tanger Automotive City (TAC)
energy
Renault Tanger Med Automotive – dedicated vehicle terminal
Tetouan Shore & Tetouan Park Light industry, logistics, offshoring activities
Findeq Commercial Free Zone Wholesale and retail
Source: Tanger Med Special Agency (2017)
104
Figure 25 - Tanger Med Industrial Platform Overview
Source: Tanger Med Special Agency (TMSA) 2017
In total, the Tanger Med Zones extend over a total land area of 3,000ha and constitute a platform
for regional competitiveness in the industrial, logistics, services and trade sectors. The zones are
ideally located, at only 14km from Spain and situated on the Strait of Gibraltar which offers the
platform of unique comparative advantages with regards to access to European, African, Asian,
North American and South American shipping routes. It is estimated that approximately 20% of
global maritime trade passes through the Strait of Gibraltar, thus providing Tangier port with a
naturally advantageous location for stop-overs and exports to Europe and the rest of the world.
This has resulted in the port rapidly becoming a transhipment hub within the region.
In July 2002, on the occasion of the Speech from the Throne, the decision to establish a “major
structural, port, commercial and industrial complex on the banks of the Strait, east of Tangier” was
taken by His Majesty King Mohammed VI. His Majesty committed Morocco to a long-term
project, punctuated by the gradual commissioning of the various infrastructures of the project,
opening the way for the accelerated development and improved competitiveness of the
Moroccan economy.
105
The purpose for the creation of the TMZ was primarily one of regional economic development,
based on a vision to drive growth within the north of Morocco taking advantage of its unique
geographical position.
Beyond the realisation of the port infrastructure, the aim was to build and ultimately manage an
integrated project of multiple dimensions, be they economic or territorial. Anchored to the
global trade flows, the success of Tanger Med was conditioned from its conception to the ability
to set up a project to the standards of its competitors, the major port, industrial and logistics
platforms worldwide. This royal vision has facilitated full support from Moroccan government
officials, investors and citizens.
Box 32 – Tanger Med Success Factors – Pillar 1 Royal Vision – TMSA Interview
Discussions with TMSA indicated that the key success factors of five key pillars of success, the
first of which was the strong vision as set out by His Majesty King Mohammed VI. This strong
vision has resulted in a strong political will to implement the Tanger Med projects. This long-
term vision has also been critical to developing the fully integrated industrial cluster.
The different zones, and their supporting infrastructure, were developed quickly and in line
simultaneously with the overall vision to create an ‘integrated cluster’ supported by world class
infrastructure and services. All developments and infrastructure within the TMZs were started
at the same time and there were little or no gaps in provision of infrastructure and institutional
support, with all initiatives developed to a high quality and to meet international standards.
The simultaneous development of the individual industrial zones and Tanger Port, as well as
road and rail infrastructure linking the different hubs of the region has enabled an ecosystem of
zones to develop and thrive. All of these carefully planned developments support each other,
creating a virtuous circle of prosperity and economic development in the region. These activities
revolve around industrial and logistics functions, including automotive, aeronautic, textiles,
logistics, electronics, services and agribusiness sectors.
106

The spatial profile of each of the Tanger Med Zones is detailed below.
Table 5-13 - Spatial Profile – Tanger Med Zones
Gross Distance to Nearest Distance to Distance to Nearest
Zone
Area Airport Nearest Port Highway
Tanger Free Zone 400 ha 3km 56km 5km
Tanger
300 ha 60km 30km 10km
Automotive City
Tetouan Park 150 ha 60km 60km 30km
Tetouan Shore 20 ha 90km 62km 8km

Source: Moroccan Ministry of Industry, Investment, Trade and Digital Economy (2017)
Infrastructure Provision
The development of Tanger Med came together with investment within major infrastructure to
support the industrial hub of Tangier, including strong telecommunication infrastructure to
attract high-tech and offshore services industries.
In addition to the Tanger Med Port complex which is discussed in further detail below, the
success of the Tanger Med Zones is also underpinned by rapid investment in infrastructure by
the Moroccan Government. In development of the Tanger Med Zones the government invested
heavily in road and rail infrastructure to link the Port with the individual zones and with the rest
of Morocco. This investment has included:
 A 61km freeway connecting the North freeway (Rabat – Tangier) with the SEZ;
 A freeway linking the commercial zone to the port;
 A two-lane expressway linking the Port to Fnideq which is the site chosen for the
Commercial Free Zone;
 A 45km rail link connecting the SEZ to the national rail network;
 A 35km freeway linking Tangier and Asliah;
 Upgrading of the Tangier – Tetouan road to an expressway; and
 A 38km expressway linking Tetouan and Fnideq.
This infrastructure was financed by the Moroccan government to support the rapid
development of the Port and the associated industrial platform.
Tanger Med Port and Logistics Complex
The rapid growth of Tanger Med Port is both a key enabler and driver of growth across the wider
Tanger Med Industrial Platform. The primary objective driving the development of Tanger Med
port is to develop an effective port platform integrated with transhipment activities, import
export activities and to support added value logistics operations.
107
The Tanger Med port complex currently consists of:

1. Tanger Med Port 1: includes two container terminals, a railway terminal,
hydrocarbons terminal, bulk goods terminal, and vehicle terminal;
2. Tanger Med Port 2: is currently under construction but when complete will include
two container terminals;
3. Tanger Med Passengers Port: includes the access zones and border inspections, the 8
berths of boarding passengers and trucks, regulations zones, and the ferry terminal;
4. Medhub Logistics Free Zone: includes 50 hectares of land surface as well as last
generation warehouses and offices for rent; and
5. Tangier Med Port Center – TMPC: 30,000m² of offices, banks, food court, multi service
spaces. These are all connected to the train, bus and maritime station.
Container Terminal
The first container Terminal (TC1) started operations in 2007 followed by the second container
terminal (TC2) a year later with capacity to handle 2.8 million TEU. These two terminals allowed
the port of Tangier Med 1 to become a major container transhipment hub in the west of the
Mediterranean and the port now has the capacity to receive the largest container ships in the
world (400 m LOA, 18,000 TEUs). By 2014 the volume of containers had reached 3 million TEU
making it one of Africa’s largest ports and it now serves 174 ports in 74 countries worldwide,
with new connections being added frequently. It can reach France in <48h, the USA in <10 days
and China and Australia in <20 days.
Construction of Tanger Med II is now underway following investment of €825 million and once
complete will increase the capacity of the port to 9 million TEU making it Africa’s largest port.
The port operations will be run by Marsa Maroc and APM Terminals which are both currently
present within Tanger Med I.
In addition to its role as a strategic platform of container transhipment on East/West

(Asia/Europe) and North/South (Europe/Africa) routes, Tangier Med I plays an essential role
in terms of connectivity and in the promotion and development of (Import/Export) traffic in
Morocco. Tangier Med I - with its diverse infrastructure links including rail and highways – plays
a very important role in connecting the port to the hinterland and supporting the development
of trade between Morocco and the rest of the world.
The Port also contains a Railway Containers Terminal, which strengthens its offer in
infrastructure and port services. The railway terminal offers a wide network of connections to
the main cities of the Kingdom and is connected to the Dry Port in Casablanca (MITA). The
Terminal Railway continues to provide advanced logistic solutions to the maritime companies,
land carriers, freight forwarders and importers/exporters with a delivery service of containers
between the Tanger Med 1 port and the different economic centres of the Kingdom.
108
Renault Vehicles Terminal
The Renault vehicles terminal is spread over an area of 13 ha with a nominal storage capacity of
6,000 vehicles. It is intended to treat the annual output of 400,000 vehicles produced by the
factory Renault Melloussa. It contains a railway terminal connected to the factory Renault
Melloussa to allow rapid transport of vehicles from factory to port.
TMPA has given a concession agreement contract for 30 years at Renault for the design,
financing, realization, exploitation and maintenance of the vehicles terminal.
Multi-users vehicles Terminal
Adjacent to that of Renault and spreading over an area of 5.5 ha, with a storage capacity of 2,800
vehicles and able to process up to 100 000 vehicles per year, the multi-users vehicles terminal
has the same breakwater with two quays capable of receiving the transporters of ships of the
latest generation (up to 240m in length), as well as technical and administrative buildings to
provide quality services.
Vehicles railway Terminal
The vehicles railway terminal has 4 channels with a utile length of 240 m enabling to treat a half-
ream per rail line and an unloading dock. This terminal is connected to the national rail network.
Each vehicle train can carry up to 240 vehicles.
Hydrocarbons Terminal
Horizon Tangiers Terminal SA (HTTSA) is an oil storage terminal at the port of Tangier Med with
a total capacity of 500,000 m3 in 19 above ground storage tanks of fuel oil, Mogas, diesel, MDO
and other blended products. It contains a truck/rail loading facilities, and two berths to serves
barges from 3,500 to 10,000 DWT and tankers from 30,000 to 120,000 DWT.
Medhub
Tanger Medhub is positioned to be a world class logistics hub directly connected to Tanger Med
Port. It covers an area of 200 hectares offering warehouses, offices and land plots for rent. It is
focused primarily on value added logistics such as consolidation, distribution and supply
including the distribution of goods to other free zones within Morocco.
The Medhub logistics zone provides a single customs area with a simplified customs declaration
for the flow of goods including the possibility of the transfer of goods between Medhub and all
customs offices.
The zone currently covers an area of approximately 50ha but is currently being expanded to a
total of 200 ha. The zone offers a wide range of real estate options including ready for use office
and warehouse units as well as lease options for serviced bare land options.
109
In 2016, Decathlon started its logistics operations within the Medhub zone with the take up of
over 20,000 sqm of warehouse space. The facility will be the second largest Decathlon logistics
facility in the world and will primarily focus on re-export activities to Mediterranean and West
African markets.
Box 33 – Tanger Med Success Factors – Pillar 2 Infrastructure Investment – TMSA Interview
Investment in infrastructure was another identified key success factor drawn from discussions with
TMSA. The port’s geographic location was identified as one of the primary contributors to Tanger
Med’s unique value proposition and competitiveness. The port enables enterprises within the
Industrial Platform to deliver to Europe and the rest of the world. The fact that Renault have now
expanded their exports to South America from Tanger Med was provided as a key example of this
connectivity.
The integrated infrastructure network which connects each of the zones was also identified to have
been a key factor in attracting foreign investment and creating a unique value proposition for export
orientated automotive industries. Each of the zones within the Tanger Med Industrial Platform are
also connected by highways allowing rapid connectivity to Tanger Med Port for the export of goods.
The utilities offer within each zone is also of very high quality, built to international standards to
ensure that investors receive the same quality of services as within their countries of origin.

Morocco’s Special Economic Zones were set forth by Law 19-94 (Dahir No. 1-95-1) on January
26th, 1995. The zones are exempt from customs regulations, foreign trade and exchange control
restrictions which are in place within the domestic economy. Further information on these fiscal
incentives is provided below.
The country has made significant progress since the degree of the SEZ law in improving the
release and clearance procedures for the SEZs. It is recorded that operators within the zones are
now able to conduct 30 operations remotely including the release and clearance of goods, digital
signature of customs declarations and e-payments. In addition, an agreement between Customs
and the Directorate-General of Taxation has now permitted approved economic operators to
exchange tax data, reducing tax-related procedures.
The Tanger Med zones are structured to allow either rental or purchase of land parcels.
Incentives
The Moroccan Industrial Strategy aims to strengthen the attractiveness of Morocco through the
definition of a value proposition specifically for automotive equipment suppliers and
manufactures. The Government have developed an ‘Offer Morocco for the Automotive Sector’
110
initiative, which is orientated around three central components including an attractive

incentives framework.
Fiscal Incentives
Fiscal incentives include:
 Exemption from customs duties and VAT;

 Exemption from registration fees and stamp duty on capital and land acquisition costs;
 Exemption from business tax for the first 15 years;
 Exemption from corporate tax during the first 5 years (a fixed rate of 8.75% for the next
20 years);
Non-fiscal Incentives
Non-fiscal incentives include:
 No restrictions on foreign exchange or repatriation of funds;

 No restrictions on local / foreign ownership;
 There are no restrictions on investments – same level of rights protection as elsewhere
in the world; and
 Coherence training program.
Hassan II Fund
The Hassan II Fund is a framework agreement related to support for industrial investment,
signed on the 15th, March 2016, between the Hassan II Fund for Economic and Social
Development (FHII), the Industry Directorate of the Ministry of Industry, Trade, Investment, and
Digital Economy, and the Ministry of Economy and Finance. It is focused on the following
sectors:
 Manufacturing equipment for the automotive industry;

 Manufacture of components and assemblies of electronic subassemblies;
 Manufacturing equipment for the aviation industry; and
 Manufacturing operations related to nanotechnology, micro-technology and
biotechnology.
The Hassan II fund can be used to contribute to:
 Up to 30% of the cost of the building based on a unit cost of 2,000Dh/m2;

 Up to 10% of the cost of acquiring new capital goods (excluding the import duties and
taxes); and
 Up to 30% of land acquisition costs.
111

The TMZs are developed, managed and operated by the Tanger Med Special Agency (TMSA)
which is a unique state agency, bringing together the key project partners. In addition to TMSA
there are a number of subsidiaries which have been developed to manage the port complex, the
industrial platform and the service and utilities functions. This is set out below:
Figure 26 - Organisational Profile
Source: Tangier Med Special Agency (TMSA)
112
TMSA
TMSA was established under Decree No. 2-02-644 of September 10th, 2002 and is the public
authority over the Tanger Med Port and SEZs. It is a limited company with a Management Board
and Supervisory Board with capital reserves of 818 million MAD held by the Hassan II Fund for
Economic and Social Development and is responsible for the regional development, urban
planning and the management of the Industrial platform and of Tangier Med port. It has been
endowed with public prerogatives including public authority missions on the port and the free
zones, in accordance with common law provisions on the matter.
All the prerogatives of TMSA are set by Decree-Law, establishing the special zone of
development Tangier Mediterranean. In this framework, the Moroccan State has entrusted
TMSA with the following main tasks:
 All the technical and economic studies relating to the port and the free zones, the
preparation of a general scheme for the development of the special development zone;
 Mobilization of the funding needed to implement the Tangiers Med project components;
 Development and operation of the new port and logistics, industrial, commercial and
tourist areas;
 Commercial promotion of the port and business areas;
 The concession, where appropriate, of activities in the port and free zones;
 Administration of the public domain of the area; and
 The management of the port by carrying out the missions of the Port Authority.
TMSA acts as a regulator and central point of contact for all branches of the Tanger Med
Activities, allowing for greater cooperation, faster processes and easier administration and
operation of activities.
TMSA is also the single point of contact for investors – they are assigned one business account
manager to manage the relationship. The organisation acts as the ‘One Stop Shop’ for investors
and provides a central point of contact for the organisation of the zones both through TMSA and
their subsidiaries which are outlined in further detail below. This organisational structure
allows TMSA to expedite the issuing of licences and permits. Notably:
 Setting up the legal entity can take 48 hours;

 Construction permits can be delivered in 7 days; and
 Operational license can be delivered in 7 days.
113
Box 34 - Tanger Med Success Factors – Pillar 3 One-Stop-Shop – TMSA Interview
Discussions with TMSA found that whilst business (fiscal and financial) incentives are considered
to be important in attracting investment they are not necessarily key to the success of the zones.
It is considered that the ease of doing business, particularly with regard to the administrative
processes and the establishment of a one-stop-shop have been more important factors to success.
Investors deal with one entity and are provided a business account manager to facilitate the
process. It was also commented that the streamlining of administrative procedures such as
obtaining licenses and permits have been key factors in increasing the ease of doing business
within the zones.
Tanger Med Port Complex
In 2008, TMSA initiated a process that led to the establishment of a subsidiary dedicated to port
activity, the company Tanger Med Port Authority SA (TMPA). This was done in order to optimize
the operational efficiency of the two core businesses of TMSA which are: the port and the zones
of activities, and in order to enhance development capacities.
TMPA is a public limited company with a board of directors, and a capital of 1,250 billion
dirhams. (MAD). The capital is allocated as follows: 70% for TMSA, Tangier Mediterranean
Special Agency, and 30% for FIPAR, the investment company of CDG Group, according to the
Memorandum of Agreement signed in July 2008 between TMSA and ‘’La Caisse de Depot et de
Gestion (CDG)’.
In January 2010, all the public missions and prerogatives related to the management and
development of the port complex were transferred by Decree of Law from TMSA to Tanger Med
Port Authority allowing TMPA to act as a port authority of the port Tangier Med.
Aligned with the modern port governance practices, The Port Authority of Tangier Med focuses
its missions on the management and the infrastructure development, the coordination and the
animation of the port community and it ensures the reliability and performance of the services
provided to the customers of the port platform.
Aside from the Tangier Med port passengers, the main port activities of the complex Tangier
Med are entrusted to private operators facilitated by a framework of concession contracts.
These operators invest in the superstructures and the equipment of the port and provide
services that meet the international standards of quality, safety and security. For example the
first container terminal (TC1) is operated through a 30 years concession contract granted in
2005 to APM Terminals Tangier, a subsidiary of APM Terminals Group, and of AKWA Group.
The Tanger Med Port Authority (TMPA) is currently undertaking construction of the Tanger Med
II Container Facility. To fund development of this infrastructure the TMPA has secured a EUR
200 million loan from the European Investment Bank (EIB) and a $178 million loan from the
114
Arab Fund for Economic and Social Development in addition to $459.8 million in capital
resources. In addition, the port operator, Marsa Maroc, is investing $407 million in
superstructure and equipment as part of the concession agreement.
The Tangier Med port 2 will contain two container terminals. Marsa Morocco is the
concessionaire of the Container Terminal 3 (TC3). Terminal 4 (TC4) is conceded to APM
Terminals.
Industrial Platform
Tanger Med Zones is the operational vehicle of TMSA in its capacity as a majority shareholder
alongside its institutional partners for the development of the industrial platform. In addition to
TMSA the Tanger Med Zones has private sector investment from CIMR, ASMA Invest, RMA,
ATTIJARIWAFA Bank and BMCE Bank.
Each of the zones within the industrial platform are managed by subsidiaries of TMSA including:
 Tanger Free Zone Company;
 Tanger Automotive City Company; and
 Tetouan Shore Company.
Each company acts as an independent entity that each manages their own zone. However, they
are TMSA subsidiaries, which allows for helpful and fast cooperation between investors and any
other administrative unit.
Services
In addition, Tanger Med created three subsidiaries for service activities supporting the safe,
reliable and comfortable operation of all zones:
 CIRES Technologies – specialises in security and safety, networks and communications

and digital infrastructure;
 Tanger Med Engineering - a maritime and civil engineering consultancy created and run
by TMSA. It offers design, supervision and management services for large-scale
engineering projects. TME is responsible for the development and management of the
Tangier Port complex, overseeing infrastructure design and supervision; and
 Tanger Med Utilities - TMU is a TMSA subsidiary (owned by TMSA), created to provide
high quality utilities services to Tanger Med.
Tanger Med Foundation
The Tanger Med Foundation for human development consolidates the TMSA Group’s strategy in
terms of social responsibility and sustainable development. Created in May 2007, the
Foundation supports community-based associative initiatives in the Tangier-Tetouan region.
Tanger Med Foundation supports different association-related initiatives in the northern region
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of Morocco. In partnership with local authorities and government institutions, the Foundation
focuses on four main pillars:
 Education;
 Healthcare;
 Professional Training; and
 Social Cohesion.
In particular, professional training has been at the heart of the TFZ development. By creating a
professional school, they insured that a pool of qualified students would be trained next to their
facilities. This has allowed for trainings to be shaped towards the needs of the TFZ, with frequent
internships and a human resource pool of highly qualified applicants already present on site.
This has also allowed to source human capital in the region of Tangier, therefore benefitting
regional inclusion and social inclusion as well as promoting gender equality in the zones.

Today, the Tanger Med zones constitutes an integrated industrial platform developed over an
area of 3,000 ha with more than 600 active companies representing a yearly export turnover of
EUR 4 billion. Overall, EUR 8 billion were invested in the Tangier industrial zones and port, of
which half came from private investors, and half was publicly financed.
These strong fundamentals have enabled the zones to meet the expectations of global players
and successfully attract globally recognised automotive, aerospace and logistics firms including
APM Terminals, EuroGate, Renault-Nissan with the largest car plant in Africa, Arcelor-Mittal,
General Electric, Delphi and Lear Corporation.
Sectoral Focus
The following table outlines the sector focus of each of the Tanger Med Zones:
Table 5-14 – Tanger Med Zones Primary Sectoral Focus
Zone Primary Sectoral Focus
Tanger Free Zone Aeronautic, electronics and textiles
Tanger Automotive City Automotive

Tetouan Park Industrial processes and logistics
Offshoring activities including Information Technology Outsourcing
Tetouan Shore (ITO), BPO (Business Processing Outsourcing) and Knowledge
Process Outsourcing (KPO)
Source: TMSA (2017)
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Real Estate
The following table identifies the land ownership and rental options available within each of the
Tanger Med Zones. Each zone is subdivided into plots of land, which investors can either rent or
purchase based on the zone arrangements. Additionally, investors can decide to rent or
purchase the land with pre-built buildings, or alternatively they have the option to construct
their own bespoke facilities on serviced bare land options.
Table 5-15 - Commercial and Lease Offer – Tanger Med Zones
Land Parcel / Building Lease Land Parcel
Zone Commercial Offer
Rates Purchase Rates
Land Parcel Lease 600 DHS / M2 /

Tanger Free Zone 95 – 1,100 DHS / M2 /month
Land Parcel Purchase month
Land Parcel Lease 657 DHS / M2 /

Tanger Automotive City 65 – 1,250 DHS / M2 / month
Land Parcel Purchase month
1,800 DHS / M2/

Tetouan Park Land Parcel Purchase n/a
month
Tetouan Shore Building Lease 90 DHS / M2 /month n/a
Source: Moroccan Ministry of Industry, Investment, Trade and Digital Economy (2017)100
The Tanger Med Zones have a comprehensive real estate offer which includes:
 Sale of vacant land – transfer of ownership;

 Lease of standard industrial buildings (pre-constructed) with an average contract
duration of 3, 6 or 9 years; and
 Lease of bespoke industrial buildings (pre-constructed) with an average contract
duration of 10 years.
The Tanger Med Zones have an average service/estate charge of 0.5 euros per sqm per year for
land.
100 http://www.zonesindustrielles.ma/?lang=en
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The economic performance of the Tanger Med Zones is summarised below in Table 5-16.
Table 5-16 – TMZs Economic Performance Summary
A total of EUR 3.5 Billion has been invested within TMZ since
the inception of the zones which represents approximately
Foreign Direct Investment (EUR)
8% of total FDI inflows since 2003. The vast majority of this
investment was provided by Renault in 2012.101
There are currently 750 active companies within TMZs as of

Number of Companies within SEZ
2016
In total over 65,000 jobs have been created within the Tanger
Direct Job Creation Med Zones and Port. Renault on its own created 9,600 direct
jobs.102
Whilst information on indirect job creation is not currently

Indirect Job Creation available it is know that Renault Tanger Med have generated
more than 30,000 indirect jobs from production activities
In 2016 the Tanger Med Zones generated a total export

Export Values ($) turnovers of EUR 5.5 billion. This accounts for approximately
25% of total Moroccan exports in 2016.103
Average Annual Output (EUR) No data is currently available on annual output.
Source: BuroHappold Analysis 2017. Interview with Tanger Med Special Agency 2017.
The impact of the Tanger Med Zones on the Moroccan economy has been significant, with over
EUR 3.5billion since its inception in the early 2000’s. The majority of this investment was
provided by Renault when they established their factory in Melloussa in 2012. This investment
101 BuroHappold Analysis 2017 and Dhaman (2016) Morocco: Inward and Outward FDI. Available from:
http://dhaman.net/wp-content/uploads/2016/02/Morocco.pdf.
102 UN Economic Commission for Africa, (2017) Economic Report on Africa – 2017
103 BuroHappold Analysis 2017 and WITS (2015) Morocco Trade at a Glance.
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helped to catalyze the industrial shift within the region and nationally from phosphate
manufacturing to the automotive industry.
The successful location of Renault in the Tanger Med Zones had a significant impact on both the
regional and national economy with regards to the automotive industry. It is recorded that
following Renault’s arrival, an estimated 30 international subcontractors followed, establishing
production activities within the Tanger Med Automotive City Free Zone. It is estimated that now,
80% of the country’s automotive sector enterprises are located within the Tanger Med Zones
demonstrating the significance of the zones to the automotive industry.104
Box 35 - Tanger Med Success Factors – Pillar 4 Market Access – TMSA Interview
In discussions with TMSA it was identified that market access has also played a key factor in the
Tanger Med Zones success. This includes Free Trade Agreements (FTAs) with both the European
Union (EU) and the United States (US). It was noted that given Morocco is the only African
country to have a FTA with the US, this places it at a competitive advantage within the region
with regards to attracting investment across the Tanger Med Industrial Platform. This market
access has been facilitated by the rapid expansion of the Tanger Med Port and the increasing
number of connections to ports internationally.
5.4.5.1 Relationship with Regional and National Economy
To examine the effect of the Tanger Med SEZ on the Moroccan economy a number of indicators
have been examined to illustrate the economic performance of the zone in:

104 UN Economic Commission for Africa, (2017) Economic Report on Africa – 2017
119
Figure 27 - Morocco GDP per Capita (constant $)
3500
3000
Tanger Med FTZ

2500
2000
1500
1000
500
0
1980
2000
1966
1968
1970
1972
1974
1976
1978
1982
1984
1986
1988
1990
1992
1994
1996
1998
2002
2004
2006
2008
2010
2012
2014
2016
Figure 28 - Morocco Export Values ($Bn)
40
35
30
25
20
Tanger Med FTZ
15
10
0
1966
1990
2014
1960
1962
1964
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2016
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Figure 29 - Morocco Foreign Direct Investment – Net Inflows ($Bn)
4.00
3.50
3.00
2.50
2.00
1.50
1.00 Tanger Med FTZ

0.50
0.00
-0.50
The analysis presented above indicates a relationship between export values and FDI in-flows
following the establishment of the Tanger Med zones. Between 2000 and 2008 export values
increased approximately 218% whilst between 2000 and 2016 FDI in-flows increased by
approximately 950%.105 As outlined in earlier analysis it is recorded that the Tanger Med Zones
account for approximately 25% of total exports in 2016 demonstrating the strength of the
relationship between the export orientated automotive industries located within the Tanger
Med Zones and their contribution to national exports. It has also been estimated that of FDI in-
flows between 2003 and 2016, FDI in Tanger Med Zones accounted for approximately 8% of
total investment.
Skills and Training
Morocco has the appropriate human resources to allow companies to increase competitiveness
and add value to their activities. The country has a very young population, with 64% of
Moroccans being aged under 34. In total there are 40,000 graduates every year (including
10,000 engineers) which provides labour tailored to the needs of companies settling in the
zones.
105 Whilst this analysis has attempted to demonstrate the economic effects of the Tanger Med Zones on the domestic economy
it should be caveated that there may be a number of economic reasons for the performance of the indicators analyzed. A more
detailed econometric analysis would be required to isolate the exact impact of the Tanger Med Zones on the indicators
analysed.
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Additionally, specific education trainings were developed for specific industries and in
collaboration with the private sector. Technical centres and engineering schools opened
campuses on the TFZ, allowing for tailored, practical trainings, providing high skilled workforce
to the zones. These have been in line with the sectors attracted to the zones. In particular,
aeronautics, automobile and offshoring have been the target sectors of this education initiative.
For example, Siemens recently opened a training centre providing high quality education for all
new employees joining their wind turbine manufacturing plant. The centre has trained over 500
employees since April 2016.
The Automotive Careers Training Institute was also set up with the support of Renault and
public investment to facilitate local training of the workforce for the factory. It was founded in
2012 and since has trained over 6,500 people.106
Box 36 - Tanger Med Success Factors – Pillar 5 Qualified Labour Force – TMSA Interview
The fifth pillar of success identified by TMSA is the presence of a qualified labour force within
the Tangier- Tetouan region. Key to this success has been the establishment of 27 training
centres developed with government funding, with training costs also subsidised by central
government funding. TMSA also identified the importance of continual discussions with
companies and industries to identify skills requirements and needs. This proactive approach to
skills development in their opinion has resulted in a skilled Moroccan workforce which is a key
strength for investors looking to locate within the region, particularly within the automotive,
aerospace and logistics sectors.
Box 37 – Standard Profil Interview – Tanger Med Free Zone
Standard Profil manufacture automotive sealing systems and are located within the Tanger Med
Free Zone. When asked to identify the key attraction of the Tanger Med Free Zone for investment
the costs of labour and the quality of labour were presented as two primary reasons. It was noted
that the Moroccan labour force was recognised to be amongst the highest quality of any Standard
Mobil manufacturing facility globally. Standard Profil also indicated that the presence of a
technical school within the zone was a key factor in providing a highly skilled workforce. The
majority of technical workers within the Standard Profil factory come from this school and then
undergo further internal training.
Other key reasons for investment included:
 The fiscal and financial incentives offered;
 The presence of a one-stop-shop – TMSA helped the firm to expand operating hours to allow
24 hour working;
 The geographical proximity to Spain – where Standard Mobil’s key customers are based; and
 Proximity of the port for facilitating export of goods.
106 Renault 2014 - https://group.renault.com/en/our-company/locations/our-industrial-locations/tangier-plant/
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Box 38 – Siemens Gamesa Interview – Tanger Automotive City
An interview with Siemens Gamesa identified that the Tanger Med’s skilled labour force was a
key factor in the decision to invest within the Tanger Automotive City zone. Siemens have their
own training facility and have so far trained over 500 workers during the current start-up phase.
The facility will eventually export blade turbines to Europe.
Other identified reasons for investment included the provision of bespoke infrastructure to
enable the facility to export blade turbines to the port easily and efficiently. This included
bespoke design of the highway access to allow turbines to be transported via specialist trucks to
the Tanger Med Port.

Governance
5.4.6.1 Political stability
Investors are usually more inclined to invest in politically stable environments. This ensures
smoother operation, reduced uncertainties and more robust trading relationships. Overall,
political stability is a pre-requisite for a business-friendly environment and reduces the risk
profile of any investment.
5.4.6.2 Strong vision and government support
Direct involvement of Government officials in attracting and supporting foreign investors has
been crucial in attracting high-visibility anchor tenants to the zones. The regional and national
visions were developed around the economic potential of the SEZ development, which also
included large-scale infrastructure developments in the country.
5.4.6.3 Administrative support and facilitation from central entity (TMSA)
TMSA’s work has been crucial in facilitating the setting up and operation of new activities in the
site. This single administrative unit allows linking up of all the zone specific agencies and their
subsidiaries, allowing for efficient administrative processes and optimisation of resources.
5.4.6.4 Use of Public-Private Partnerships
The use of public-private partnerships as a fundamental aspect of both the development and
operation of Tanger Med Zones has been used to great success. The TMSA is a public – private
partnership and the agency has a number of subsidiaries such as TME and TMU which follow
the same structure. The use of PPP’s has enabled the private sector to invest in the development
of Tanger Med Zones and to participate in the operation of facilities such as Tanger Med Port.
This has bought private sector expertise to Tanger Med Zones and has resulted in the successful
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growth and operation of key assets such as Tanger Med Port which in turn has supported the
rapid growth of export orientated industries within the zones.
Financial and economic climate:
5.4.6.5 Economic stability
Macroeconomic stability is crucial for an ambitious, growing company that may consider
investing in an SEZ. The following indicators show the positive trends taking place in Morocco
during the successful development of the zones.
 High GDP growth over last decade;

 Public debt reduced from 68% to 48% of GDP;
 High level of investments (>30% of GDP);
 Unemployment reduced from 14% to 9%; and
 Reduced inflation (1.8%).
5.4.6.6 Fiscal and financial incentives
Exemption from customs duties and VAT, registration fees and stamp duty on capital and land
acquisition costs, business tax for the first 15 years and corporate tax during the first 5 years (a
fixed rate of 8.75% for the next 20 years) form part of the financial incentives that were set up
in the SEZ. These incentives have offered a competitive advantage for investment. In addition, it
was decided to impose no restrictions on foreign exchange or repatriation of funds, no
restrictions on local/foreign ownership, and no restrictions on investments – at the same level
of rights protection as elsewhere in the world.
5.4.6.7 Strong and supportive banking system
Local actors in the financial services sector, growing internationally through a strong foothold
in Africa, have allowed the financing of large projects (including land, CAPEX and training
programmes)
5.4.6.8 Strong anchor tenants – Renault, Maersk, Arcelor-Mittal, General Electric etc.
Attracting powerful anchor tenants at the outset of the SEZ was crucial in paving the way for
further investments in different sectors. In automotive, Renault decided to build the biggest
plant in Africa in the Tangier region. Renault-Nissan is now the single largest producer of cars
worldwide, and has exported over 1 million cars from the Tangier port. These successful
investments have given credibility to a project and act as catalysts for investments in their
market segment.
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5.4.6.9 Trade agreements with relevant markets
Morocco has a unique set of Free Trade Agreements with access to 1 billion customers in Europe,
Africa and north America, as well as being a stop-over destination for ships globally. This is a
unique advantage for export-focused companies, which represent the majority of activities in
SEZs.
Infrastructure
5.4.6.10 Adequate infrastructure and connectivity – a rail connection to the port was built for
Renault
Major infrastructure upgrade – new airports, ports, rail, roads, energy and telecom have allowed
for export-focused companies to invest in the region. This allows products to be transported
quickly, safely and efficiently to global markets.
5.4.6.11 Easy to buy/lease/build on land (with financial help form Hassan II fund)
The flexibility and wide range of options that TMSA offers potential investors intends to help
foreign and local companies to relocated in the SEZ in the most convenient way. Facilitation of
financing, planning and administrative issues is therefore made simple.
5.4.6.12 Security & utilities
A safe environment is provided to companies settling in the SEZ. Security and safety, but also
reliable internet connections, heating, water, wastewater and solid waste services are provided
at international standards.
5.4.6.13 Rapid construction of zones and parallel infrastructure projects (port took 4 years only to
build)
Rapid construction of manufacturing plants, shells and transport infrastructure
5.4.6.14 Affordable housing for workers
Affordable housing is crucial for local workers to be able to work in the SEZ.
Skills:
5.4.6.15 Adequate and affordable labour force
An affordable and highly skilled labour force is now available in Morocco. This is the result of
major investments in the education sector, including professional training centres within and
outside the SEZs. This now allows for investors to hire local professionals and to contribute to
job creation and sustainable development of the local economy.
125
5.4.6.16 Local expertise in line with investor requirements
One of the strategic objectives of SEZs, has been possible through development of local expertise
and training of individuals. A priority at company-level, this is also a magnet for innovation and
higher skills standards in the region.
 Large scale investment in infrastructure allowed the Tanger Med Zones to capitalise on
their strategic geographic position on the Strait of Gibraltar. Investment in the port, road
infrastructure and a dedicated rail link enabled the zones to attract the likes of Renault,
a key anchor tenant.
 The Tanger Med Special Agency was created specifically to oversee the development of
the port and the industrial platform. It has autonomy from central government and has
created a number of subsidiaries which are public / private. This organisational
structure has enabled it to respond flexibly to investor requirements and to meet the
needs of future growth.
 The strategy for the Tanger Med Zones is well defined and was based on a sound
economic rationale with regards to the types of industries and activities which should
be targeted and the geographic location of the industrial platform and supporting
infrastructure. This plan has enabled the region to capitalise on its comparative
geographic advantages and is key to its economic success.
 There has been significant investment in skills and training in collaboration with
industry to ensure that the local workforce is available to support industry
requirements.
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5.5 Case Study 4: Aqaba Free Zone, Jordan

As one of the successful Freeports in the region, Aqaba is a case study in mixed use development
with private sector participation and decentralisation at the heart of its success. Aqaba has
successfully leveraged its tourism potential apart from its focus on traditional industrial and
manufacturing sectors to emerge as a leading special economic zone in the region. Aqaba is
ranked amongst the leading international free zones of the future by fDi Intelligence (part of the
Financial Times group).
Table 5-17 – Aqaba Free Zone Overview
SEZ Typology Free Trade Zone
Established 2001
Area ~37,500 ha
No. of firms onsite >5,000
No. of jobs created ~70,000
Authority-in-charge Aqaba Special Economic Zones Authority (ASEZA)
The Aqaba SEZ began functioning in 2001 following the introduction of the Aqaba Special
Economic Zone Law No.32 in 2000. It began functioning in early 2001 and was formally
established in May 2001. The SEZ covers the Kingdom’s only port, Aqaba Port, and its immediate
surroundings including Wadi Rum. The SEZ covers approximately 375 sq.km of territory.
The SEZ proposal was developed following a period of weak economic performance within the
Kingdom in the late 1990s. Jordan, at this period, was suffering from a large stock of foreign debt,
high unemployment and a significant proportion of the population living under the poverty line
and was struggling to achieve GDP growth above population growth. To address these issues the
government acknowledged the need to implement structural economic adjustment
programmes.
The Aqaba SEZ was implemented as a means to drive private sector investment within the south
of the Country and to radically transform the city of Aqaba, including its administrative system
and institutions. The primary objectives of the zone were to:
127
 Attract investments by creating a world class competitive business environment;

 Improve the quality of life and prosperity of the local community; and
 To ensure continuing development on the basis of transparency and efficient utilisation
of resources.
The SEZ now operates as a world class business hub and leisure destination on the Red Sea and
is a significant driver of economic development within Jordan.
In December 1999 the Jordanian Economic Consultative Council (ECC) was established by Kind
Abdullah with the purpose of monitoring the implementation of vital socio-economic,
administrative and educational reforms. The ECC was a crucial instrument in driving
transformational institutional change within Aqaba given it was appointed directly by the King
and personally supervised by him, allowing it to bypass existing institutions within the state
such as parliament and the cabinet.
The ECC developed an integrated plan for Aqaba which was endorsed by the King in April 2000.

The Aqaba Special Economic Zone is situated in the Gulf of Aqaba leading to the Red Sea; the
ASEZ extends to the land borders of Israel and KSA and embraces territorial waters of Egypt,
hence providing strategic access to the regional and international markets.
The zone, acting as a regional multimodal transport hub, benefits from the proximity to the port,
airport and roadways infrastructure. The port of Aqaba, situated within the zone, has a capacity
of ~1.5 million TEU. It provides international firms access to high quality logistics, storage and
distribution infrastructure apart from providing access to skilled labour force.
The zone also benefits from its proximity to the King Hussein International Airport which
operated under the ‘open skies’ policy offering preferential incentives and rates to trading
partners. The airport has an estimated cargo handling capacity of ~400,000 tons/annum.
The zone is strategically located to serve the rest of the GCC region and is at a few hours of flying
distance from Europe, Middle East and the rest of Asia.
Proximity to a large urban centre also offers the zone a distinct advantage in terms of access to
a larger market base, access to skilled labour force and a vibrant urban setting – all important
factors in driving ASEZ’s attractiveness.
128
Figure 30 - Aqaba SEZ Location
Source: BuroHappold 2017
Infrastructure Provision
Aqaba SEZ is served by both a deep-water seaport and an International Airport and is well
connected to a network of modern highways which connect Aqaba to the surrounding region.
The port areas includes the Main Port, the Middle Port and the Southern Industrial Port. Further
details are provided in Table 5-18 below.
129
Table 5-18 – Aqaba Ports Overview
Port Purpose
Comprises 12 berths and can handle vessels with a draft up to 14.4m.

Main Port
Used for handling general cargo, grain and phosphate export.
Comprises 7 berths including Mo’ta Berth, Moshterak Berth, the

Container Terminal, Ro-Ro berth and Yarmouk Berth (passenger
Middle Port terminal)
These berths are primarily used for handling containers, rice,

livestock, cement, vegetable oil and passengers.
Comprises 4 berths including an Oil Jetty, Timber Berth and an

Industrial Terminal
Southern Industrial Port These berths are used primarily for handling oil, timber and serve the
imports and exports of the industrial complex products such as
fertilisers, sulphur, salt, potash and chemicals.
Source: Aqaba Ports (2017)

SEZ Act and Regulations
The Aqaba Special Economic Zone Law was established in 2000. Under Article 3 of the Law it
states that the “aim of the establishment of the Zone is to enhance economic capability in the
Kingdom by attracting different economic activities and investments”.107
The SEZ law established the Aqaba Special Economic Zone Authority (ASEZA) and mandated
that it should have juridical personality with financial and administrative autonomy. The law
enabled the ASEZA to acquire movable and immovable property and perform all legal acts
necessary to achieve its objectives including concluding contracts, accepting aids, grants and
donations and litigating. The ASEZA is the regulator for the Aqaba SEZ.
Aqaba Special Economic Zone Authority (2000) The Aqaba Special Economic Zone Law no (32) for the Year 2000 and its
107
amendments.
130
The Aqaba SEZ offers a range of options for potential investors with regards to land ownership
including options for the purchase or lease of land. The SEZ Law includes use or lose it provisions
which enable the ASEZA to repossess land at fair compensation.
Incentives
The range of Incentives offered to companies choosing to locate in Aqaba SEZ includes:
Fiscal Incentives
Fiscal incentives include:
 A 5% tax rate on all net business income (in contrast with a 35% rate for other parts of
the country), except that from banking, insurance and land transport activities;
 No social services tax, or annual land and building taxes on improved property;
 No customs duties on imports into the Zone;
 A limited 7% sales tax on the consumption of selected personal goods and
hotel/restaurant services (as opposed to a 13% levy for other parts of the country);
Non-fiscal Incentives
Non-fiscal incentives include:
 No foreign equity restrictions on investment in tourism, industry, retail and other

commercial services. This includes approval for 100% foreign ownership;
 No foreign equity restrictions on investment in tourism, industry, retail and other
commercial services;
 Availability of land for lease or sale;
 Streamlined labour and immigration procedures – a project may employ up to 70%
foreign labour as an automatic right;
 Full guarantees on rights and ownership; and
 Direct loans and equity investment made by ASEZA in businesses choosing to locate on
site.

The zone is developed and operated by a single autonomous institution tasked with its planning,
development and operation – Aqaba Special Economic Zones Authority (ASEZA). With its board
of six ministerial-level commissioners, ASEZA is one of the first attempts at decentralisation of
economic development in the Kingdom. As a result, the operating model is attractive to private
investors looking for more efficient and less bureaucratic procedures.
131
ASEZA
Upon its creation and according to the ASEZ Law, the ASEZA subsumed the functions and
employees of both the Aqaba Regional Authority (ARA) and the Aqaba Municipality. The ASEZA
tasks include developing the area for investments, increasing job opportunities and preventing
monopoly of economic activities. The ASEZA’s vision for Aqaba is to:
1. Create a world-class business hub and leisure destination, enhancing the quality of life
and prosperity of the regional community through sustainable development; and
2. To transform the city of Aqaba and its surroundings into a driving force for the economic
growth of Jordan and the Middle East.
ASEZA has adopted a service-oriented model with an aim to assist investors with setting up of
their businesses in the zone through a one-stop-shop. Although, ASEZA started out with a
separate customs commission, the customs function has now been taken over by the Jordanian
National Customs.
The ASEZA includes five main branches as shown in Figure 31.

Figure 31 - Aqaba SEZ Organisational Profile
Source: BuroHappold Research (2017)
Land ownership and lease terms are decided by ASEZA with the occupier based on the
requirement of the facility needed to be set up. ASEZA also facilitates provision of basic
infrastructure such as utilities, ICT etc. The development of ASEZA is governed by the 2001-
2020 masterplan which outlines the aim and vision to integrate the free zone into the wider area
masterplan. Part of the plan is also to focus on attracting private payers in infrastructure
development.
The operational aspects of ASEZA also offer further insight into the factors driving its success.
The zone operates a one stop shop to help businesses register their interest in operating in the
zone.
132
Aqaba Development Corporation (ADC)
The ADC was formally created in 2004 as the development arm for Aqaba SEZ. The ADC is jointly
owned by the Government of Jordan and ASEZA and has a mandate to:
 Develop the SEZ

 Build new infrastructure and required superstructure
 Expand existing utilities;
 Create necessary business enablers for the SEZ; and
 Manage and operate its key facilities.
Within the SEZ, the ADC owns the ports, airports and strategic parcels of land as well as the
development and management rights for these strategic infrastructure assets in addition to
other key infrastructure and utilities assets. ADC’s approach is to optimise private sector
participation in the development and management of these assets.
A key example of this has been the development of public-private partnerships at Aqaba port
which have transformed the development and operations of the port terminals. This was
initiated by the passing of Privatisation Law 25/2000 which allowed port ownership to be
transferred to the ADC so that it could move ahead rapidly with policy reforms. In the face of
strong opposition from Parliament to the partnership, the government decided to implement a
short term management contract initially lasting two years. Under this structure the private
sector was only responsible for providing management services and not any port infrastructure.
This was seen as a suitable structure to test the potential viability of a public private partnership
at the container terminal, after which a 25-year joint venture could be entered into depending
on performance.108
In 2004 APM Terminals signed a 2 year management contract within the ADC. During this period
the ACD measured the operator’s performance based on selected indicators to measure
progress. These reforms were identified to bring about almost immediate change and resulted
in anchorage waiting times being eliminated and average port stays being reduced from 8 days
to a few hours. By 2007 container dwelling times were down to 16 days and port productivity
had more than tripled from 9 moves an hour to 28.
These changes were primarily attributed to increased productivity and performance following
investment of $30 million in soft and hard infrastructure which included 100% computerisation
of the container terminal. More flexible shift systems were also implemented which increased
productivity of port activities.
108 Cebotari and Dennis (2008) A Public-Private Partnership Brings Order to Aqaba’s Port. IFC and World Bank.
133

Established under the royal patronage in 2001, the Aqaba Special Task Force was constituted to
transform Aqaba into a leading hub for investors and tourists alike, combining business and
leisure. Over the past decade, ASEZ has made significant progress by positioning itself as a
leading hub for trade for the rest of the country and the region. Leveraging its physical attributes
and development vision, the zone has managed to carve out a value proposition in response to
the emerging market demand for leisure and industrial activities over the last decade.
The vision to develop Aqaba SEZ and facilitate economic reform within the Kingdom has been
successful with annual average GDP growth averaging 7% since 1999, which is more than
double the rate of growth (3%) which was previously recorded before the economic reforms
were introduced. Aqaba SEZ and Jordan’s five other SEZs have been key to this success and
particularly in their promotion of economic development, employment provision and FDI
incentivisation. It was recorded that between January 2001 and August 2013, Aqaba SEZ
attracted a total of 400 million USD in investment and was placed 20 th in fDi Intelligence
Magazine’s ranking of Global FZs of the Future.109
Sectoral Focus
The 2001-2020 Masterplan outlines the key land uses to support the growth and development
of desired sectors and economic activities. The key development uses include: mixed use
commercial, residential and logistics; airport zone with logistics and storage; resort, leisure and
recreation zone; urban space; a specialised logistics zone and the southern industrial zone
including the port, industries and supporting logistics functions.
As far as the industrial land use in ASEZA is concerned, the current mix only partially reflects
the 2020 Masterplan ambitions and targets. While the tourism sector is over-represented in the
actual land-use mix, industrial land take is below the masterplan targets. These figures,
however, are indicative and it is expected that during the course of ASEZA’s development, the
disparity between the planned and actual may come down.
Key sectors/industries present in the zone include: Tourism, Heavy industries, light industries,
services, commercial, logistics/warehousing, transportation, education, health & environment.
The zone targets 50% of investments in the tourism industry, 30% in a variety of services, 13%
in heavy industry, and the remaining 7% in light industry. The charts below show the indicative
actual (left) and planned (right) land use mix.
109MEED (2013) Jordan Economic Zones. Available from: http://www.meed.com/supplements/2013/meed-guide-to-

economic-zones/jordan-economic-zones/3183327.article
134
Figure 32 - Aqaba SEZ Land Use Mix (Actual – Left vs Planned – Right)
Source: Jordan Investment Board – ASEZA Presentation
Real Estate
In terms of costs to be borne by businesses choosing to locate in the industrial estate in the
northern part of ASEZA, the following rates are applicable:
 Rental rate for developed land (USD per sqm per annum): 5.50-7.00;
 Rental rate for standard factory building (USD per sqm per annum): 32-37;
 Selling price of developed land (USD per sqm):
o Lots up to 5,000-9,000 sqm: 60-85;
o Lots up to 10,000-19,000 sqm: 56-70;
o Lots up to 20,000-39,000 sqm: 50-63; and
o Lots up to 40,000 sqm above: 45-55.
 Selling price for standard factory building (USD per sqm): Starting at 320.
The economic performance of the Aqaba SEZ is summarised below in Table 5-19.
135
Table 5-19 – Aqaba Economic Performance Summary
Aqaba has managed to attract a total of $400 million

USD in investment since was established in 2001.
The zone has also attracted projects, primarily within

the hotel and property development sectors, valued in
Foreign Direct Investment (USD)
excess of $8 billion USD.
The Aqaba SEZ was placed 20th in fDi Intelligence

Magazine’s June/July 2012 rankings of Global Free
Zones of the future.
There are currently 300 active companies within the

Number of Companies within SEZ Aqaba SEZ, of which approximately 70% are Jordanian
and 30% international.
There is an objective to create 70,000 direct jobs over

the period to 2025 within the Aqaba SEZ. In 2005 it was
Direct and Indirect Job Creation
recorded that a total of 10,000 new jobs had been
created within the SEZ.
Information for Aqaba SEZ is not available. However, in

2006 it was recorded that the Aqaba Industrial Estate
Export Values ($)
which falls within the SEZ generated garment exports of
approximately $12 million.
Total Annual Output ($) Information not disclosed
It is recorded that the Aqaba SEZ had a significant impact on the local economy growing 25%
faster than trends recorded before its establishment. The SEZ has now developed into a strong
hub for tourism and logistics activities.110
110 United States Agency for International Development (2007) Review of Free Zone and Industrial Estate Policy and Practice
in Jordan: Implications for Local Development.
136
5.5.5.1 Relationship with Regional and National Economy
To examine the effect of the Aqaba SEZ on the Jordanian economy a number of indicators have

Figure 33 - Jordan GDP per Capita (constant $)
4000
3500
Aqaba SEZ
3000
2500
2000
1500
1000
500
Figure 34 - Jordan Export Values ($Bn)
18.00
16.00
14.00
12.00
10.00
8.00
6.00
Aqaba SEZ
4.00
2.00
0.00
137
Figure 35 - Jordan FDI – Net FDI Inflows ($Bn)

4.00
3.50
3.00
2.50
2.00
1.50
1.00
Aqaba SEZ
0.50
0.00
-0.50
Looking at the Jordanian economy more broadly it can be seen that there have been significant
increases in GDP per capita, export values and FDI inflows following the opening of the Aqaba
SEZ. Analysis indicates that export values increased 179% in the six years following the opening
of the Aqaba SEZ whilst FDI in-flows increased by approximately 1,087%.111
At the regional level it was recorded that the Aqaba Governorate GDP increased by 13%
following the creation of the Aqaba SEZ, an increase of almost three points above the underlying
trend prior to its creation.112 The creation of the zone was recorded to generated an additional
180 million (JD) in additional output for the domestic economy by 2005 with employment
growth of approximately 10,000 jobs. The largest contributors to this growth are identified as
manufacturing and transport and communication sectors.
111Whilst this analysis has attempted to demonstrate the economic effects of the Aqaba SEZ on the domestic economy it should
be caveated that there may be a number of economic reasons for the performance of the indicators analyzed. A more detailed
econometric analysis would be required to isolate the exact impact of the Aqaba SEZ on the indicators analysed.
112 Rockler, N (2006) The Impact of Aqaba Special Economic Zone on the Jordanian Economy.
138

Governance
5.5.6.1 Strong vision and government support
The King was personally involved in establishing and promoting the zone. Despite some strong
domestic opposition the King’s support was critical in enabling the zone to be established.
5.5.6.2 Creation of an effective legal, institutional and regulatory framework
Throughout development of the zone a series of feasibility studies were undertaken to examine
the potential legal, regulatory and institutional frameworks for the zone. This involved detailed
organizational audits of the existing government bodies to determine their relative strengths
and weaknesses and institutional capacity. These studies were undertaken with the vision for
an integrated overarching authority which ultimately resulted in the formation of ASEZA.
The design of ASEZA was undertaken through an exhaustive analysis of every interface between
Government and the private sector and a consideration of which parts of government in which
they should be integrated. This resulted in the formation of partnerships between the Jordan
Investment Board and the Jordan Tourism Board to ensure coordinated and collaborative
marketing.
5.5.6.3 Creation of a ‘One Stop Shop’
The extensive process of establishing the institutional framework allowed Jordan to create a
truly effective ‘one stop shop’ and resulted in US$450 million in investment, 310 land sale/lease
agreements, an 800% cumulative increase in licensed construction, a 63% increase in
employment and Government revenue increases of 835% for sales tax and of 430% for income
tax within ASEZA’s first three years of operation.
5.5.6.4 Fiscal and financial incentives
The Aqaba SEZ offer special fiscal incentives which have created an attractive business
environment for global investors. This includes duty free imports of goods from the National
Customs Territory and overseas, exemption from social service tax, exemption from sales tax on
the majority of goods and services and exemption from annual land and building tax as well as
no foreign equity restrictions on investments and 100% foreign ownership allowed.
139
Infrastructure
5.5.6.5 Provision of high quality infrastructure
The Aqaba SEZ offers investors full service utility networks including power,
telecommunications and global international communications connectivity through Fibre Optic
Link Around the Globe (FLAG).
5.5.6.6 Attractive Real Estate Offer
Potential investors have access to serviced land and facilities for light/medium manufacturing,
warehousing, residential and commercial uses.

 A number of detailed studies were undertaken in the development SEZ programme,
particularly with regards to the legal and regulatory framework. The subsequent design
of this framework has enabled the zone to create a very efficient and successful business
environment and has increased the ease of doing business within Jordan for external
investors. This is evident in the significant increase in FDI in flows following the creation
of the Aqaba SEZ.
140
5.6 Case Study 5: Lekki Free Zone, Nigeria

The Lekki Free Zone (LFZ) was designated a Fee Zone in 2008. It is situated in the east of the
commercial hub of Nigeria, Lagos.
The LFZ is part of the overall multi-use development plan for a new city on the Lekki peninsula,
which includes residential, commercial, industrial, logistics and recreational development as
well as a new airport and deep water port.
Each parcel of land in the LFZ is allocated to a developer, after they have been awarded a license
to do so. There is a mix of private developers and joint venture or partnership agreements
involving government organisations. One such joint venture is for the development of the
Southwest Quadrant.
This was initiated by the China Civil Engineering Construction Corp. (CCECC) in 2003. CCECC
had been operating in Nigeria for over a decade by then and therefore had time to formulate a
strategy to help develop a new Fee Zone. In March 2006, a Chinese consortium, CCECCBeiya
(“Beyond”) was set up in Beijing, followed two months later (May 2006) by the establishment of
a partnership between that consortium and the Nigerian government to establish the Lekki Free
Zone Development Company (LFZDC). In November 2007, the Lekki zone won support in the
second Ministry of Commerce of the People's Republic of China (MOFCOM) tender.
The Lekki Free Trade Zone has thus far shown good progress in being an example of cooperation
between different levels of government (federal, state and municipal), as well as international
cooperation, with a large part of the zone being a Chinese-African joint venture.
Figure 36 – Lekki Free Zone
Source: Guardian (2017) Lekki Free Zone. Available from: https://guardian.ng/business-services/lagos-woos-investors-to-lekki-

free-zone/
141

The Lekki Free Trade Zone lies on the peninsula east of Lagos, with the Atlantic Ocean to the
south and Lekki Lagoon to the north. It is 70 kilometers from the Murtala Mohammed
International Airport and is located 50 kilometers away from Apapa Port. In addition to the
Apapa Port, a new multi-purpose deep water port is being built at the LFTZ. The new port is
scheduled for completion in 2019 and is being developed by the Tolaram Group (Sponsors),
together with the Nigerian Port Authority, the Lagos State Government and other strategic
investors.
In line with the Lekki sub region master plan, the entire LFTZ covers an area of 16,500 hectares
and it is divided into two peninsulas by the Lekki Lagoon, parcel A (southern peninsular) and
parcel B (Northern peninsular).
The LFZ is further divided into four (4) quadrants namely:
 Southwest Quadrant (phase 1): This quadrant is already being developed. It is a mixed
use industrial area focused on: Comprehensive public facilities; Mixed industries
including light and medium industries; Logistics and distribution (standard factories
and warehouses) of good made in the zone and those intended for exporting; Low and
medium density residential areas; It also has areas for recreation, and buffer zones along
the beach coast
 Southeast quadrant (Phase 2): This area is planned to accommodate petro-chemical
related industries. It is being development by the Dangote group – as a private
developer. The Dangote’s plan is to build a refinery and fertilizer plant here.
 Northwest quadrant (Phase 3): This area would have a similar role to the South West
quadrant which is a general mixed-use industrial area. This quadrant will be developed
after the SW quadrant is almost fully developed and after the new airport has been
developed. Portions of this quadrant (approximately 1000ha) are being developed but
it is in the early stages in comparison with the Southwest quadrant.
 Northeast quadrant (Phase 4): This quadrant offers a mixed-use urban area as a new
waterside town providing a range of employment, commercial, residential, community
and recreational uses. It will complement the role of the other three quadrants and act
as the city administrative, business and residential center for the whole of the LFZ. This
quadrant has not yet been developed.
Infrastructure
The Lekki Free Zone exits on 16,500 of land but the not all the land has been developed. As each
quadrant has been developed, so new infrastructure has been built in that particular area. Thus
142
far, it is the Southwest, Southeast and portions of the Northwest quadrant that are being
developed.
The power supply in the zone is provided by 12MW of from General Electric Gas Generators. The
water supply is currently supplied by several bore holes but this is seen as a temporary measure,
until the construction of a permanent water treatment plant is completed. Telecommunications
infrastructure plans have not been completed yet but the mobile phone networks cover the
Lekki Free Zone area, according to the LFZDC.
The Lekki Free Zone also houses a customs processing centre and container terminal. There are
also plans under way to build a new Port and a new International Airport on the Lekki Peninsula,
to add capacity for the fast growing city of Lagos, as well as to cater for the Lekki Free Zone
investors.
Box 39 – Lekki Free Zone – Challenges in Infrastructure Provision – Interview with Lekki Free
Zone Authority
The Lekki Free Zone Authority identified that the main challenge facing the Lekki Free Zone
at present is the slow development of additional infrastructure. The large sum of money
required to develop new infrastructure, including new roads, but particularly the new port
and airport, means that different sources of finance need to be found – not only from the state
and federal government but from development banks and or private investors.
Background of SEZs in Nigeria
After the challenges faced by the first, second, third and fourth national development plans
between 1962 and 1985, Nigeria undertook a structural adjustment programme in 1986. The
objectives of programme included promoting investment, stimulating non-oil exports and
providing a base for private sector-led development; promoting the efficiency of Nigeria’s
industrial sector; privatizing and commercializing state-owned enterprises to promote
industrial efficiency programme. The programme also resulted in the development of new
legislation, including the Privatisation Act of 1988 and the Public Enterprise Act of 1989. The
Structural Adjustment Programme was soon followed by the New Industrial Policy of 1987. This
industrial policy had a strong focus on export promotion and this focus led to the creation of
legislation to achieve these goals. In 1992, Nigeria adopted the Export processing zone
development strategy via Decree No. 63. This laid out the goal of promoting exports, attracting
foreign investment, encouraging economic diversification and building Nigeria’s industrial
sector. This was soon followed by the Nigeria Investment Promotion Commission (NIPC) Act in
143
1995, which led to the establishment of NIPC and the focus on more coordinated investment
promotion efforts.
Out of these pieces of legislation, the framework for Nigeria’s Free Zones was created. Vision
2020, as well as National Economic Empowerment and Development Strategy (NEEDS) have
most recently provided the policy framework in which Free Zones have been prioritized and the
most recent development of the LFTZ has happened. Importantly, the Federal Government of
Nigeria also recognised the need to more effectively involve state governments as well as the
private sector. This coincided with greater political stability and consistent economic growth in
Nigeria in the early 2000s. These factors led to the Free Zone programme gaining significant
momentum and the development and investment into the Lekki Free Zone.
SEZ Act
The overarching piece of legislation which guides the Free Zone programme is the Nigeria
Export Processing Zones Act (2004). This law stipulates that the licensing, monitoring and
regulation of Free Zones Scheme in Nigeria is vested in the Nigeria Export Processing Zones
Authority (NEPZA).
The Act states that a zone may be operated and managed by a public, private or a combination
of public and private entity under the supervision of and with the approval of Nigeria Export
Processing Zones Authority (NEPZA). The NEPZA regulations also include investment
procedures, regulations and operational guidelines for EPZs in Nigeria.
SEZ Regulations
5.6.3.1 Licensing
Any enterprise wishing to do business within an EPZ in Nigeria must first apply in writing to
NEPZA for permission. NEPZA may grant a licence for any approved activity in an EPZ to an
individual or business. That business does not, however, need to be incorporated in Nigeria. The
granting of a licence by NEPZA shall constitute registration for the purposes of company
registration within an EPZ. A licensed enterprise does not need to comply with the rules of local
incorporation in Nigeria, governed by the Companies and Allied Matters Act 1990 (which
provides for the incorporation of companies and incidental matters). This is because the
granting of a licence by NEPZA is evidence of a company’s registration in an EPZ in Nigeria.
There are a number of different types of Free Zone status as follows:
 FTZ;
 EPZ;
 Export Processing Farm (EPF);
 Science and Technology Park (S&TP); and
 SEZ.
144
The types of licences issued by NEPZA are as follows:
 Free Zone Developers Licence: granted to either a public or private entity or a

combination of the two for the establishment, operation and management of an FZ in
Nigeria under the supervision, monitoring and regulation of NEPZA;
 Free Zone Enterprise Licence: granted for an enterprise to undertake an approved
activity within an FZ. These activities could be manufacturing, trading or service
provision; and
 Export Processing Factory/Export Processing Farm Licence: granted to an export-
oriented manufacturing enterprise or farm located in Nigeria which has the capacity to
export over 75% of its production.
5.6.3.2 Customs Regulations
The Export Processing Act allows for the receipt in foreign currency, by an approved entity, of
payment for goods and services supplied to customers within Nigeria. This means foreign
investors can charge for their services in their own currency and are not bound by the
sometimes restrictive provisions of the Central Bank of Nigeria Act 2007.
An approved foreign investor is allowed to receive payment for goods and services supplied
within the Customer territory in USD$ or the prevailing Central Bank of Nigeria (CBN) current
exchange rate in Nigerian Naira (₦) only. Foreign investors are therefore only allowed to charge
for their services in USD$ or equivalent in Naira (₦) based on the current CBN exchange rate.
Incentives
5.6.3.3 Fiscal Incentives
Fiscal incentives for investors (as per the Nigerian Free Trade Zone policy):
 100% tax holiday from all Federal, State and Local Government taxes, rates, duties.
However, companies within the Zone are expected to provide PAYE (Pay as You Earn)
contributions to the host state for all workers residing outside the Zone. In the event
that expatriate workers reside outside the zone, the same is applicable but the
contribution will be calculated by the State Internal Revenue Board of the State
Government;
 Duty-free and tax-free import of raw materials and components for goods destined for
re-export; and
 Duty-free introduction of capital goods, consumer goods, machinery, equipment, and
furniture.
145
Fiscal Incentives for Developers
 100% tax holiday for all Federal, State and Local Government taxes, rates, duties and
levies.
Non Fiscal Incentives
Non-fiscal incentives for investors as per the Nigerian Free Trade Zone policy:
 One stop approval for permits, operating licenses and incorporation paper;
 Permission to sell 100% of manufactured, assembled or imported goods into the
domestic Nigerian market with import duty calculated on the basis of the value of the
raw materials or components used in assembly not on the finished products;
 100% foreign ownership of investments;
 100% repatriation of capital, profits and dividends;
 Waiver of all expatriate quotas, and import and export licenses;
 Prohibition of strikes & lockouts (10 years);
 On-site customs office, immigration and police station; and
 One-stop-shop services through NEPZA.
Non-Fiscal Incentives for Developers
 Provision of offsite infrastructure; and

 Rent free arrangements during construction of premises, after which rent is determined
by the Zone Authority or Management
The Nigeria Export Processing Zones Authority (NEPZA) is Nigeria's Investment Promotion
Agency for investment into the Free Zone areas in Nigeria. The licensing, monitoring and
regulation of Free Zones Scheme in Nigeria is the responsibility of the Nigeria Export Processing
Zones Authority, as outlined in the Nigeria Export Processing Zones' Authority Act 63, of 1992.
The state governments are also, however, involved in contributing to the development of the
zones. This may be in the form of financial contributions, as well as promotion of the Zone
alongside the Zone Authority or Management to attract and encourage foreign investment.
In the case of the Lekki Free Zone, NEPZA together with the Federal Government of Nigeria has
authorised the Lekki Free Zone Development Company (LFZDC) to be the sole entity to develop,
operate, administer and manage the South/West Quadrant of the Lekki Free Zone project. The
Lagos State government is involved through its ownership of Lekki Worldwide Investments Ltd.
An MOU has been signed between the three parties to facilitate development of the Lekki Free
Zone.
146
The LFDZ is owned as a joint venture between a Chinese consortium - China-Africa Lekki
Investment Co. Ltd (CALIC) – 60%, the Lagos State Government – 20%, and its sub-entity, Lekki
Worldwide Investment Ltd – 20%. The Lagos State Government’s equity share is in return for
providing the land and the 50-year right to operate the zone to the Chinese consortium.
Real Estate
The State Government contributed towards the construction costs of the zone infrastructure, in
partnership with the developer.
Sector Focus
The Lekki Fee Zone is targeting a wide array of investment in the following areas:
 Light industry manufacturing: Light Industries; Solar Panels Assembly; Furniture;

Garment; Building Materials; Plastic Products; Telecommunication Accessories;
 Heavy industry manufacturing: Textile manufacturing; Equipment / Machinery;
Assembly; Cement/Fertilizer; Aluminum Sheets; Export Processing; Steel Pipe Mill;
Agro Allied Chemicals;
 Oil & Gas: Petroleum Product Storage and Distribution; Blending Plant and Crude
processing;
 Real Estate: Residential - Middle /High Income Houses; Hotel and Guest Houses; Office
Apartments; and
 Tourism.
The focus of particular sectors is determined by different developers of the different quadrants.
The Lekki Free Zone Development Corporation, which has developed the Southwest quadrant
for example has focused on light and heavy industrial manufacturing. The Southeast quadrant
being developed by the Dangote group is set to develop a petroleum refinery, fertilizer
processing plant, sub-sea gas pipeline project, as well as a petro-chemical project.
Labour
Due to the zone’s close proximity to Lagos, there is a large labour pool for businesses to draw
on. The population of Lagos is around 20 million people, with a literacy rate in Lagos State of
92%, presenting a large semi-skilled workforce.
147
Costs
Table 5-20 - Costs within Lekki Free Zone
Labour cost- Electricity costs -

Rental rates
minimum wage kWh
- Warehouse Rental - USD50 per square meter per annum

USD 50 / month113
- Standard Factory Rental: same as the rental for
warehouse
Approved Zones are
- Sublease fee for manufacturing - USD25 per square meter
required by law to pay
for unprepared land
in line with global best N45 per Kw/Hr114
- Sublease fee for manufacturing - USD35 per square meter
practices and not below for prepared land
the FGN minimum - Sublease fee for Oil and Gas - USD200 per square meter115
wage.
- Sublease fee for Real Estate related investment- USD200
Source: Various – see footnotes
The factor costs in Nigeria, by international benchmark standards, differ by input. While labour
is fairly affordable by international benchmark standards, the cost of electricity and rent is not
as cheap as other countries in Africa. Nigeria has to a certain extent overcome these cost factors
through its good location and specific offerings, catering to Chinese investors in the Southwest
quadrant and catering to the Dangote Group’s requirements in the Southeast quadrant.
Market Focus
The Lekki Free Zone is a mixed-use zone and therefore focuses on investors that want to export
as well as target the local market.
Nigeria is a signatory to AGOA and therefore exporters have duty free access to the US market
for products stipulated under the agreement – including textiles and apparel.
The EU has initiated (but has yet to finalise) an Economic Partnership Agreement with 16 West
African states, in the Economic Community of West African States (ECOWAS) – which includes
Nigeria – and the West African Economic and Monetary Union (WAEMU). Once this agreement
is in place, Nigeria will have even better access to EU markets, across a range of products.
The new proposed minimum wage being considered in Nigeria at present is, however, over three times this amount at
113
about USD155/month at current (Aug 2017) exchange rates

114 http://lfzdc.org/wp-content/uploads/2017/04/INVESTMENT-GUIDE.pdf
115 Ibid
148
Table 5-21 – Lekki Free Zone Economic Performance
Foreign Direct Investment (USD) Investments into the Lekki Free Trade Zone, LFTZ has
risen to over $15 billion in the last 11 years (2007-2017)
according to the Lagos State Government116
Number of Companies within The number of investment projects has reached 49,
SEZ according to Paul Osaji, partner at Paul Osaji and Co.
Estate Surveyors and Valuers. 117
Direct and Indirect Job Creation Information not available
Export Values ($) Information not available
Total Annual Output ($) Information not available
Source: Various (see footnotes)
In terms of broader economic impact of the Free Zone programme across Nigeria, the economic
performance of the country as a whole, in terms of FDI and exports, has improved considerably
since the adoption of the Free Zone programme.
Figure 37 - Nigeria FDI – Net inflows ($)
10000
Opening of Lekki Free Zone
8000
6000
4000
Passing of Free Zone Law
2000
-2000
116 https://www.thisdaylive.com/index.php/2017/05/11/lekki-free-trade-zone-investment-rises-to-15-billion/
117 http://punchng.com/experts-highlight-opportunities-in-lftz-dangote-refinery/
149
Figure 38 - Nigeria Exports of Goods and Services (current $ Bn)
160.00
140.00
120.00
100.00 Opening of Lekki Free Zone
80.00
60.00
40.00
20.00
0.00
1986
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
While much of this can be attributed to investment in the oil sector and exports of oil, there is
also a strong likelihood, particularly between 2010-2015, that the Free Zone programme has
contributed to higher levels of investment and exports. This can be demonstrated by the
growing contribution of manufacturing in the country (see figure below) – a focus area of the
Free Zone programme.
Figure 39 - Manufacturing Value Added (% of GDP)
30
Opening of Lekki Free Zone
20
10
0
1985
1996
2007
1982
1983
1984
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2008
2009
2010
2011
2012
2013
2014
2015
-10
-20
-30
-40
150
Box 40 – Lekki Free Zone Success Factors – Economic Success Factors – Interview with Lekki
Free Zone Authority
The Lekki Free Zone Authority comment that Nigeria’s success in advancing the Free Zone
programme in the early 2000s was built on political stability, economic growth, and a changing
approach to economic policy – whereby state governments were more heavily involved in the
management of economic development programmes. In particular the involvement of the private
sector in the development and operation of the Lekki Free Zone is identified as a key factor which
determined success with regard to the operation and development of the zone.
5.6.6 Success Factors and Challenges

Success Factors
The Lekki Free Zone has attracted significant investment and built significant investment as a
result of some crucial factors, including:
 Partnership between Nigerian and Chinese governments;

 Significant involvement of the private sector, particularly Chinese investors – including
in the development and operation of the zone;
 Good location being close to Lagos, the commercial hub of Nigeria – including the busiest
port in West Africa, an international airport, and a large potential workforce;
 Attractive incentive regime;
 Effective cooperation between different levels of government – Federal, State and
Municipal government;
 Evolution of legislation and regulation in Nigeria, accompanied by greater political
stability and consistent economic growth helped the Free Zone programme in Nigeria
advance significantly in the early 2000s. This led to increased levels of investment and
development of new zones, including Lekki Free Zone.
Challenges
Nigeria’s LFTZ has faced a number of challenges in its development and operation. Although
significant progress has been made, the development path of the project has faced many
obstacles along the way. Among them are the following:
 Financing constraints and partnership disputes: Construction of the Zone’s

infrastructure and first buildings was delayed for a period because of financial
constraints on the part of the Chinese consortium – this was caused by issues with the
partnership terms within the Chinese consortium and a subsequent restructuring of the
consortium;
151
 Miscommunications over terms of partnership: Expectations between the Nigerian and

Chinese partners were at odds with one another with regards to capital investments and
responsibility for building infrastructure in the zone; and
 Local community disputes about resettlement terms, the construction of utilities lines
through their communities, as well as the employment of Chinese workers for
construction. This caused project delays and resulted in transferring 5 percent of the
shares of the Nigerian partner to the local community.
 Limited infrastructure on the Lekki Peninsula is proving to be a stumbling block for
businesses needing to transport goods and people to the port or airport in Lagos. The
new port is still in the development phase and the airport is still at the feasibility phase,
as discussions between the government, firms conducting the feasibility assessment and
investors are ongoing.
These key challenges are now being addressed through various strategic reforms in the Free
Zones Administration in Nigeria.
Summary Lessons Learnt
 Learning from past experiences (where only the Federal Government of Nigeria were
involved) helped the Lekki Free Zone change the way Free Zones were governed and
operated. The inclusion of State government and private sector helped catalyse the
development of the Lekki Fee Zone;
 Choosing a location attractive to investors has been key to Lekki’s development – with
the zone being near Lagos (Nigeria’s commercial hub), a major port, airport and other
major infrastructure;
 Providing an environment in which it is easier and cheaper to do business than the
broader national territory. Nigeria has provided this through both non-fiscal incentives
(such as the one-stop-shop), as well as fiscal incentives (such as tax holidays and duty
exemptions on imported raw materials for processing);
 Key partnerships with the private sector – and in the case of Lekki, the Chinese private
sector. There has been significant involvement of the private sector in the development
and operation of the zone; and
 Having a stable political environment helped grow investor interest in Nigeria and in
turn the Lekki Free Zone.
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5.7 Case Study 6: Bole Lemi Industrial Park, Ethiopia

The Bole Lemi Industrial Park is located in the Addis Ababa Metropolitan region. It is Ethiopia's
first industrial park, developed by the Industrial Parks Development Corporation (IPDC). The
first phase of Bole Lemi started operations in 2014. It is focused on the clothing, textiles and
apparel sector and aims to export the vast majority of the products from the industrial park.
Figure 40 – Bole Lemi Industrial Park
Source: BBC (2017) C&H Garment Factory.

The first phase of Bole Lemi covers an area of 156 ha, within the Addis Ababa Metropolitan. The
site is located southeast of the city centre, 9km east of the Addis Airport. It is connected to the
road network, but does not have direct access to the Addis Ababa-Djibouti Highway. The
distance to the nearest seaport, which is the Port of Djibouti is more than 500 km. However, the
park is located relative close to the Modjo Dry Port with a distance of approximately 50 km.
Phase 2 of Bole Lemi Industrial Park is under construction, covering approximately 186 ha of
land, adjacent to the first phase of the park.
Infrastructure
On-site infrastructure is provided for by the developers of the park. In the case of Bole Lemi, it
is therefore the responsibility of the Industrial Parks Development Corporation. Off-site
transport infrastructure is the responsibility of the national government.
With regards to specific on-site infrastructure:
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 Power supply in the industrial park is provided by a temporary mobile power

substation;
 Water and waste treatment services are still under development; and
 The site has a dedicated fire prevention and protection, as well as park security.
In terms of administrative infrastructure, aiming to assist investors:
 There is a one-stop-shop on site;

 There is a custom clearance service for imported raw materials and exported products.
Background of SEZ Development in Ethiopia
Ethiopia’s move to incorporate SEZ into the country’s economic direction, derives from the main
economic development policy – the Growth and Transformation Plan 2010/11 – 2014/15 (GTP).
The GTP aims at addressing a range of developmental indicators, while also providing a
framework for industrialization for SEZs through a policy matrix (GTP/PM) targeting specific
sectors. The GTP is complimented by Ethiopian Investment Policy, which is supported by
accompanying legislation the Investment Proclamation No.769/2012, which among other
things ensures the protection of private property rights and the repatriation of capital and profit.
Industrial Parks were also identified as way in which to address two of the most frequently
mentioned grievances by investors in Ethiopia, namely access to land and government being
seen as an impediment to investment (in terms of red tape and policy and regulation). The
industrial park programme was therefore seen as a tool to address these impediments to further
investment by liberalising business conditions in a limited geographical area.
Bole Lemi was given further impetus by Ethiopia being a signatory to the United States’ African
Growth and Opportunity Act (AGOA). These conditions led to the World Bank financing the
development of Kilinto Industrial Zone and the Bole Lemi Industrial Zone, with further
expansion of Bole Lemi II, being approved in early 2014. Bole Lemi is administered by the
Industrial Parks Development Corporation (IPDC), under the Ethiopian Investment
Commission.
Legislation
The Industrial Park programme is governed by the Industrial Parks Proclamation No. 886/2015,
as well as the Investment Proclamation No.769/2012. Industrial Parks Proclamation aims to:
 Attract private sector participation in manufacturing;

 Enhance competitiveness of economy; and
 Creates jobs and achieve sustainable economic development.
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The Act also lays out the rights and obligations of the developer, including to:
 Develop the industrial park land;

 Operate the industrial park;
 Provide services to investors in the industrial park as the operator;
 Sub-lease the land;
 Rent or sell immovable assets to investors;
 Make space available for the one-stop-shop facility;
 Take advantage of incentives offered;
 Aim to link local businesses into supply chain;
 Replace expatriates with Ethiopians by training local employees; and
 Can sub-lease development or operation of site.
The regulations lay out in more detail timeframes of these obligations. A number of the new
regulations are currently being gazetted and await finalisation (given the Industrial Park
programme is fairly new in Ethiopia). Some of the regulations have, however been signed off.
SEZ Regulations
5.7.3.1 Land Tenure
Land lease term: 60-80 years at nominal rate for factories & residential quarters.
Factory rental has a renewable 10-year term.
Incentives
Fiscal incentives
Fiscal incentives for manufacturers:
 Exempted from income tax up to 8 - 10 years;

 Exempted from duties & other taxes on imports of capital goods, construction materials,
spare parts with a value of 15% of capital goods after business license, raw materials for
the production of export commodities & vehicles;
 Loss carry forward (for half on income tax exemption of period granted); and
 No taxes on exports.
Fiscal incentives for developers:
 Exempted from income tax up to 15 years (outside Addis Ababa); and

 Exempted from duties & other taxes on imports of capital goods, construction materials,
spare parts, 15% of capital goods after business licence, raw materials & vehicles.
155
Non-fiscal incentives
Non-fiscal incentives for manufacturers:
 Expedited procedure of securing entry, work permit and certificate of residency for
expatriate personnel working in industrial parks and their dependents; and
 Customs facilitation - transport of imported raw materials straight from customs post
to factory through bonded export factory scheme.
Non-fiscal incentives for developers:
 Provision of essential infrastructure, including dedicated power substations;

 One-stop government services within the parks premises; and
 Land lease term: 60-80 years at nominal rate for factories & residential quarters.

Ethiopian Industrial Parks Development Corporation (IPDC) was established in 2014, as a public
enterprise. One of its primary mandates is to develop and administer Ethiopia’s industrial parks,
including leasing developed land as well leasing and transferring, through sale, of buildings on
the industrial park land.
The IPDC, works with the Ethiopian Investment commission and the Ethiopian Revenue and
Custom Authority to provide a one-stop-shop service for investors investing in the designated
industrial parks.

Real Estate
Services available in Bole Lemi industrial park:
 One-stop-shop (on site and in EIC’s HQ in Addis Ababa);

 Facilitation and after care;
 Cafeteria, banking & other common services; and
 Custom clearance service for imported raw materials & exported products. 118
Sectoral Focus
The park focuses on the following sectors:
 Apparel and Textiles; and
118 http://www.investethiopia.gov.et/investment-opportunities/strategic-sectors/industry-zone-development
156
 Leather and Leather Products (Shoes).

Labour
Due to its location on the southeast of the Ethiopian capital Addis Ababa, Bole Lemi can draw on
a big and diversified labour base. The approximate size of the labour force in Addis Ababa is 2.03
million. 30% of this workforce will have primary education while the proportion of the labour
force with secondary education is estimated to be 15%. In order to ease hiring skilled workers,
collaborative relationships with technical vocational education and training (TVET) institutes
have been established. However the TVET institutions are still at early development stages and
not yet able to respond adequately to the labour needs.
Costs
Labour cost-
Electricity costs - kWh Rental rates
minimum wage
Minimum wage in USD 1/m2 in the first five years

Ethiopia is on US$0.03/kWh120
USD 1,25/m2 rate the following 5 years. 121
average 50 USD119
Source: Various – see footnotes
While Ethiopia’s labour costs are not as low as some of the low-labour cost competitors, the cost
of utilities and rental rates are very low. Together with effective government agency
coordination and the low factor costs, Ethiopia has attracted significant investment in recent
years.
Markets being focused on (e.g. exports to particular countries/regions or focused on local

market)
The economic goals of the industrial park are to attract foreign investment, expand exports and
boost employment. As a result of economic focus and the types of incentives offered, 95% of the
products being produced in the industrial market are exported.
Bole Lemi promotes itself as destination for clothing, textile, apparel and shoe firms wanting
duty-free market access to USA through AGOA & to the EU through duty free access EBA
119 http://allafrica.com/stories/201411100627.html
120 Invest in Ethiopia (Brochure) - EMERGING MANUFACTURING HUB IN AFRICA - Textiles and Apparel
121 http://www.investethiopia.gov.et/images/pdf/Factor_Costs_2014.pdf
157
(Everything But Arms) agreement, given its position as a Least Developed Country qualification
for EBA (Everything But Arms) agreements.
Table 5-22 – Bole Lemi Free Zone Economic Performance
Foreign Direct Investment (USD) Total FDI thus far into the Bole Lemi Industrial Park has
reached over USD 41 million122.
Number of Companies within Information not available

SEZ
Direct and Indirect Job Creation Over 13,000 jobs have been filled since opening of the park
Export Values ($) Exports from Bole Lemi for the 2nd half of 2016 and 1st half
of 2017 amounted to approximately USD 24 million
Total Annual Output ($) Information not available
Source: Various (see footnotes). BuroHappold Analysis 2017
Bole Lemi has successfully attracted Foreign Direct Investment (FDI) through investors, such as
the George Shoes Group and Nitton Apparels Manufacturing from China, Ashiton Apparel and
Vestis Garment from India, Jay Jay Garment from Sri Lanka and Shintis Garment from South
Korea.
Looking at Ethiopia more broadly, there have been some huge growth in the economy, including
in the attraction of FDI and the growth of the manufacturing sector. This growth is mainly due
to country-wide structural reforms and it is too early to judge the performance of the industrial
parks in contributing to this.
122 Figures provided by Ethiopian Investment Commission – September 2017
158
Figure 41 - Foreign Direct Investment – Net Inflows (current $ millions)
2500
Opening of Bole Lemi

2000
1500
1000
500
0
2003
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Figure 42 - Manufacturing Value Added (annual % growth)
40
30
Opening of Bole Lemi
20
10
-10
-20
-30
-40
5.7.6 Success Factors and Challenges

Success Factors
 Well-coordinated government agencies, particularly the investment promotion

agencies and government departments have facilitated investment in a deliberate and
strong way. The EIC in particular took a methodical approach to understanding
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investor’s concerns and then finding the right kind of investors by taking the following
steps:
o Looked at issues in those sectors that require improvements and tried to solve these
problems through the Industrial Park Programme;
o Looked at countries where there was growing investment in that specific sector; and
o Started targeting investors by - approaching companies directly; facilitating meetings
an interest through the business diplomacy sections of the embassies; visiting investors
face-to-face; taking the advice of investment advisors; organising site visits; signing
MoUs with interested investors.
 Cheap labour and low price electricity have made certain manufacturing activities more
affordable than regional competitors, such as Kenya/
 Incentives:
o The strong incentive package offered under the investment promotion legislation and
regulation has made investment more attractive;
o Streamlined government involvement;
o Effective one-stop-shop services at the park level – lowering the costs of doing
business;
o Strong ties with international donors (World Bank, Chinese Development Bank);
o Good transport infrastructure, close to highways and airport; and
o Expansion of the Industrial Park into Phase 2, based on the achievements of Bole Lemi
Phase 1.
Challenges
 During development of the zone there were some challenges, including:

o Delays in the infrastructure and utility services developments, including access to
power and water – with delays in connecting the zone to reliable sources of power and
water; and
o There were at times disputes among involved government entities in development of
the zone. These issues have mostly been resolved since the zone has become
operational.
 During operations, other challenges have been encountered, including:
o High rate of employees turnover (because of ability of competing labour markets in and
around surrounding area ~ particularly because of Bole Lemi’s proximity to the capital
city where other sectors have large demands on labour );
o Raw material shortage (most raw materials and accessories are imported);
160
o Lack of industrial work culture & low productivity (factory workers have limited or no
prior exposure to industrial work culture);
o Communication barriers between workers and managers – most front line workers are
young rural migrant with little formal education; and
o Lack of competent local supervisors and managerial capabilities.
Summary Lessons Learnt
 The drive to promote and attract investment into the Bole Lemi Industrial Park was
achieved through a well thought out investment strategy process. This included a well-
coordinated effort from government agencies aimed at targeting specific investors to
mitigate existing concerns and weaknesses within the Ethiopian investment
environment. The investment promotion efforts were also specifically targeted at
particular businesses in particular sectors, after feedback from market research;
 The relatively low cost of doing business in Ethiopia’s Industrial Parks has been a
defining feature of its investment attractiveness, with very low cost of electricity and
relatively low cost of labour (particular in relation to regional competitors). The
Industrial Park offering was also bolstered through a strong incentives package; and
 In terms of lessons learnt from the challenges faced by the Industrial Park, it was clear
that skills – both in terms of factory workers and line managers – needed to be rapidly
improved in order to effectively cater to the needs of investors.
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6 Synthesis and Conclusions

6.1 Introduction
Based on the information and data available to the authors, this report has shown that at present
there are approximately 32 OIC Member Countries which have established SEZ programmes,
with a number who have aspirations to develop future programmes. Whilst data is not available
for all zones, there has been a clear increase in the number of zones established since the start
of the millennium with 63% of zones123 established since 2000 within OIC Member Countries.
The study demonstrates that there have been notable differences in the success and impact of
SEZ development across OIC Member Countries and whilst there are examples of success and
failure of SEZ development within each regional groups (Asia, Arab and African) it is
demonstrated that there have been notable challenges in developing SEZ programmes within
the African countries in particular.
A number of case study and site visit examples have been used within this study to identify the
key challenges faced by OIC Member Countries when developing and implementing SEZ
programmes, as well as the key success factors which underpin the most successful examples of
those cases examined.
This section now presents specific conclusions and recommendations based on the findings of
the analysis presented above and the extensive literature review of SEZ experiences and
performance. These recommendations have been formulated based on the analysis of OIC SEZ
performance, global SEZ experiences and the case study experiences but are derived for the OIC
as a whole.
Whilst it is acknowledged that there are no ‘one-size-fits-all’ solutions to SEZ development, there
are a number of key success factors which have been identified which government, operators
and investors could learn from in the design, implementation and operation of SEZ programmes
within OIC Member Countries. These challenges and success factors are now examined in
further detail below and focus on key Organisational, Economic and Physical/Spatial factors.
6.2 Key Organisational Factors

6.2.1 Vision and Strategy
The first step in considering SEZ development is to define whether an SEZ is the appropriate
policy tool to address the underlying economic requirements driving consideration of the SEZ
123 Based on data available for 140 zones across OIC Member States.
162
programme. Early decisions on the appropriateness of SEZ programmes is critical to ensure that
political support remains constant throughout the development programme.
Observation of the performance and success of SEZs within OIC Member Countries and
internationally suggests that SEZs tend to be more successful where they are programmed and
designed as core components of a national economic strategy. This requires a clear indication
and quantification of the specific economic strategy priorities that are best served nationally
and regionally by SEZs, with an evidence-based case as to why SEZs constitute an appropriate
form of policy intervention. Furthermore, definition of the specific performance outcomes and
metrics to be addressed by SEZs should also be clearly articulated.
The economic rationale for the development of an SEZ programme also needs to be grounded in
an appreciation of the existing factors constraining economic performance. Where key
constraints relate to skills, wages and productivity or structural issues such as geography or
scale then SEZs should not be considered the primary policy tool for intervention.
Robust Economic Rationale
The development SEZ programmes should be underpinned by a robust economic rationale

which clearly defines both the economic objectives and targets of the proposed programme
Extensive analysis of the country’s economic performance, constraints to growth and
investment climate should be undertaken to determine whether the development of an SEZ
programme is a suitable policy tool.
Selection of SEZ Model
It is important to determine the right type of SEZ development model (e.g. CFZ, EPZ, FTZ or wide
area SEZs and Freeports). The type of SEZ should be aligned to the policy objectives and in some
instances could include innovative configurations in order to present the most attractive value
proposition to the market. This again, should be informed by a robust economic analysis of
existing constraints and barriers to growth and align with national/regional policy targets and
objectives.
Alignment with National Economic Strategy
The implementation of SEZ programmes should be considered with regards to a national

economic strategy which identifies how SEZs will link to certain parts of the economy. Successful
SEZs are firmly entrenched in national economic strategies with clear definition of their
potential role in driving economic change and in achieving defined economic priorities.
163
Examples from OIC Member Countries
Malaysia – Penang
In the case of the Penang FIZs (originally FTZs) a strategy was developed to use free economic
zones to attract key anchor tenants within the E&E industry which could be used to generate
large scale employment opportunities and drive economic growth within the State. This was
linked to national objectives targeting investment within the E&E sector. The alignment with the
national vision and objectives ensured political support and increased investor confidence when
choosing Penang as the location for investment.
6.2.2 Political Capital

There is evidence to suggest that where the responsibility for decision-making with regard to
SEZ development is determined by a single government ministry or authority, it will lack the
political support and direction to achieve success.
It is key for a SEZ programme to be supported by a range of government departments and

agencies in order for it to be successful. While the initiative may be led, for example, by a Ministry
of Trade and Industry, there are other crucial government departments who oversee issues such
as infrastructure development (e.g. roads or ports agencies), work permits for foreign workers
(e.g. Ministry of Labour), customs procedures (e.g. revenue service), and investment promotion
(e.g. investment promotion agency). These departments or agencies not only have to be involved
but need to buy into the SEZ programme to facilitate effective delivery of services to the SEZ
programme.
It is also important for the executive in government to support the SEZ programme. This can be
done directly through a president or vice-president, for example, sitting on the SEZ board or for
a representative from the office of the president to be involved at a board level or management
support level. Executive support for an SEZ programme helps ensure that all those in
government understand that the programme is an executive priority and that effective
administration of the programme is a priority.
One tool, which can bring together different government stakeholders is SEZ working groups.
SEZ Working Groups
The formulation of SEZ working groups can be a key tool in ensuring that the full range of issues
and opportunities that an SEZ programme generates is captured and to ensure lateral support
from relevant stakeholders. Farole, Baissac and Gauthier (2012) 124 suggest that an effective
working group should be composed of highly experienced government technicians who have a
164
deep knowledge of the country’s economic challenges, policies legislation and economic
development projects. They suggest that a suitable working group could include:
 At least one astute political and policy “power-broker” or “insider,” for instance (but not
necessarily) from the office of the Head-of-State or Head-of-Government;
 At least one relatively successful representative of the private sector, actually engaged
in business as opposed to simply on the executive of a chamber of commerce, and
engaged in a competitive market (as opposed to a monopolistic or oligarchic one); and
 At least one senior, seasoned Civil Service technocrat (ideally at the Cabinet or
Permanent Secretary level), in (or retired from) a Ministry interacting with business,
accustomed to confronting the limits of what Government actually can and cannot
accomplish.
It is also advocated that the establishment of Working Groups be aided by international experts
in a facilitation role.
Jordan - Aqaba
As was in the case of Aqaba SEZ, the creation of a SEZ working group attached to the Presidency
or the Office of the Prime Minister helped to ensure that the group retained autonomy
throughout the planning and development process of the SEZ programme.
6.2.3 Legal and Regulatory Framework

When determining the legal framework, consideration should be given to what extent a SEZ law
is required and whether regulations, legislative amendments or a contract law or concession
could offer similar benefits. The key benefits to avoiding the creation of an SEZ law is time, given
laws can take many years to be passed.
In designing the legal and regulatory framework it is key to define how the SEZ programme will
be governed and how investors will be attracted and serviced. In broad terms, careful
consideration should be given to development of a legal and regulatory framework that
genuinely creates a ‘special’ economic operating environment and that is clearly differentiated
from the normal economy of the country. This should not mean ‘compensating’ for weaknesses
in the wider economy, but should involve establishment of an extra-territorial area that provides
truly beneficial investment and trading conditions and is fully complementary to the country’s
forward strategy for economic growth.
165
Design of Institutional and Administrative Frameworks
A clear and well defined institutional and administrative framework must be defined in the law,
where the role of different government departments or agencies is strictly laid out. The
oversight of the SEZ programme must, first and foremost be defined – e.g. if it is decided the
ultimate oversight is to be handled by a SEZ board, then the role of make-up of that board must
be laid out. Once the oversight body is defined, then there must a clear path for SEZs to be
designated, developed and operated, with a clear understanding of each – i.e. who designates an
SEZ as such, who qualifies to apply for designation (public sector agencies, private sector
organisations), and what are the processes to follow to achieve successful designation. The same
detail needs to apply for the development and operation of the SEZ.
Alignment with Domestic Legal and Regulatory Environment
A key challenge for countries initiating SEZ programmes is to ensure that the SEZs do not create
unnecessary distortions in terms of either the national trading or legal environment. For
example, where SEZs are targeted towards sectors that are already present to some extent in
the country, there is a need to avoid any perceptions of ‘unfairness’ on the part of sectoral
operators already located in the mainstream economy. It is common for existing industrial
players to feel aggrieved that newcomers are being given special treatment or additional
incentives that are not available to incumbents. This can be avoided where the SEZ strategy is
clearly defined and targeted at anchor operators or value chain segments that are either missing
in the country or very under developed.
Consideration of Investor Requirements
The legal and regulatory framework should specifically consider investor requirements. It
should consider the individual needs of the specific target sectors and particular regulatory
challenges which need to be overcome in attracting inward investment in particular industries
and from a range of origin countries. Experience suggests that legal and regulatory frameworks
which reduce administrative burdens, costs and time relative to the domestic environment will
foster increased amounts of FDI. The most common tool for achieving this is through the
provision of a ‘one-stop-shop’.
Implementation of One-Stop-Shop (OSS) Arrangements
Evidence from the case study examples and global SEZ experience indicates that the
establishment of one-stop-shops can be effective tools for targeting inward investment in SEZs
and to facilitating a significantly more attractive environment for potential investors with
regards to ease of doing business. This helps to increase investor confidence and one-stop-shops
can help to appease investor concerns about the domestic regulatory and investment
environment.
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There are a number of significant challenges associated with the design and implementation of
OSS structures. Firstly, the range of activities, services and functions that should be included
within the OSS needs to be defined and agreed. Following this, significant effort will have to be
expended in agreeing the mechanism for the various entities involved to pass over control of
functions to the OSS. These functions will be wide-ranging and will include: customs processes,
business licencing, environmental permits, training and labour force related activities, utilities
and energy. Brokering agreement across this diverse range of government functions will be
extremely time-consuming and should not be under-estimated.
Malaysia – Penang
Prior to the formation of Invest Penang, the PDC carried out inward investment and promotion
activities for the state of Penang and its FIZs and Industrial Estates. In 2004, Invest Penang was
created however to formalise the ‘one-stop-shop’ responsibilities and functions of the PDC. The
promotion agency now provides comprehensive information on Penang’s investment
opportunities and facilitates every stage of the investment process.
Nigeria – Lekki Free Zone
The creation of new legislative and regulatory policies in Nigeria with regards to Free Zone
development, coupled with greater political stability and economic growth has enabled the Free
Zones programme to advance significantly in the early 2000’s.
6.2.4 Incentives Framework

The reduction of administrative burdens is key to a successful SEZ programme. Non-fiscal
incentives, which facilitate the ease of doing business within SEZs, are now often cited as more
important to investors than the implementation of fiscal benefits, particularly with regards to
the provision of a genuine ‘one-stop-shop’ which can expedite the acquisition of licenses and
fast-track clearance processes. 125
With regards to fiscal incentives, there is a key balance that needs to be maintained between
offering investors, for example, lower taxes and over-subsidising the SEZ programme. Incentives
are key to attracting inward investment within SEZs and should provide the zone with clear,
comparative fiscal advantages compared to areas outside the zones. The rapid increase of SEZ
development globally, however, provides challenges in defining unique incentives programmes
and introduces a risk that governments will pursue a ‘race to the bottom’ in order to undercut
more mature economies and zone developments.
125 A. Mukherjee et al. (2016) Special Economic Zones in India. ICRIER, India.
167
Where possible incentive frameworks should be standardised at the country level to ensure that
competition between zones within a single state does not result in the adoption of unsustainable
packages of incentives which may undermine economic performance and achieve ‘value for
money’. In addition, examples from successful SEZ programmes within OIC Member Countries
and globally indicates that incentives packages which include ‘sunset clauses’ benefit from
avoiding unsustainable guarantees of fiscal incentives.
Targeted Incentive Frameworks
Locus Economica - legal SEZ experts - recommend that incentive frameworks should typically
be based on:
 Low reliance on tax holidays and other fiscal incentives;

 Simplicity of taxes (maximum three to four taxes);
 Avoidance of duplication of national tax administration; and
 Elimination of indirect taxes.
Very importantly, fiscal incentives should be focused on the sectors and strategies which are
being targeted by the proposed zone programme and should not be used as the main
differentiator between competing zones. There should ideally be a clear and transparent link
between national economic priorities, target industry-sectors suitable for the SEZ programme
and associated incentivisation.
Examples from Case Studies
Ethiopia – Bole Lemi Industrial Park
The Bole Lemi Industrial Park created a strong incentives package which was developed through
well-coordinated government agencies aimed at targeting specific investors to mitigate existing
concerns and weaknesses within the Ethiopian investment environment. This included pro-
active investment strategies and well-designed investment legislation and regulation which has
resulted in a more attractive investment proposition within the zone.
Malaysia – Penang FIZs
Incentives within the Penang FIZ are determined at the federal level by the Malaysian
government which offers a comprehensive range of incentives targeted at priority sectors and
industries. Malaysia has historically taken a pro-active approach to incentive programmes,
transitioning from export orientated incentives prevalent at the beginning of their FIZ
programmes and moving to incentives aimed at technology transfer, R&D activities and skills
and training initiatives as they have sought to facilitate a shift to higher value added activities
and industries.
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6.2.5 Institutional Frameworks

Some of the most successful SEZs within OIC Member Countries have established new
institutions to regulate, operate and develop SEZs. The ability of new institutions to operate
from a new and relevant mandate, including new systems and procedures, allows them to
provide a new set of skills and a new culture of performance, transparency and autonomy from
established government institutions.
In circumstances where countries are considering multiple SEZs or moving from a single SEZ to
a multiple zone country, then establishment of a single SEZ authority should also be considered
to regulate all of the zones. An overarching authority enables the leverage of existing expertise
and avoid the potential pitfalls of multiple authorities competing with one another and creating
investor confusion.
It is also key for the SEZ authority to have involvement from different government
departments/agencies, as well as the private sector – whether direct or indirect (i.e. sitting on
the board of the SEZ authority or just providing necessary input, e.g. granting of business
licenses / work permits).
There is also an important role for the private sector in the separation of regulation and
operation of SEZs. Whilst it is appropriate for the public sector to retain authority for regulating
economic zones, there is increasing evidence that the incorporation of the private sector into
the operation of zones can yield a number of benefits. This includes increased efficiencies as well
as investment in infrastructure on BOT agreements.
Morocco – Tanger Med Zones
The TMSA was established as a special public – private agency with public prerogatives, tasked
with the responsibility of driving the economic transformation of the Tanger Med region. The
specific objectives of the agency are to focus on the execution of projects and to manage the large
land reserve which has been granted to it and through its subsidiaries manages the operation of
the Tanger Med Port and the Industrial Platform. This has been very successful through effective
cooperation with the private sector.
169
6.2.6 Zone Development and Operation

Successful zone development and operation require a clear understanding of who is responsible
for each task. The development of an SEZ is often an expensive undertaking if additional
infrastructure is built. The organisation / authority (if not the same as the operator) responsible
for the development of a zone must see a return on the capital outlay (whether economic or
financial). The development must also take into account the requirements of the potential
investors – e.g. kinds of businesses and their needs; additional infrastructure, which connects
the zone to major transport nodes (e.g. roads, railway lines, ports and airports).
The operation of the zone is as key as the development. A successfully operated zone will provide
efficient services to the investors, while also making a financial return. Successful development
and operation is often likened to a real estate development, where money spent on building of
real estate and servicing of tenants is recovered through rent and sales.
Coordination across relevant ministries, departments and agencies is a critical success factor for
SEZ performance, either through a dedicated autonomous SEZ authority or through other means
such as a ‘one-stop-shop’.
The effective coordination of administrative, legal and regulatory policies is essential to

fostering an efficient business environment and attracting FDI. Less successful zones have
deployed ‘one-stop-shop’ models but often these are utilised for marketing purposes rather than
providing the efficient investment processing functions which are required. These institutional
bodies often come up against political resistance given perceptions of power transfer from
ministries and departments. A common mistake is to implement options which cause the least
resistance however it is recommended that the model of one-stop-shop is considered separately
from its political merits.
6.2.7 Involvement of the Private Sector in Zone Development and Operation

Particularly within fragile economies, the involvement of the private sector within SEZ
development and operation can help to bridge the gap between institutional and capacity
weaknesses. This could include assistance with the design and management of zones including
determination of incentive regimes.
Experience suggests that the most successful zones do tend to be those operated by the private
sector and where the relationship between private operator and government regulator is clear
delineated, positive and open. A careful balance needs to be struck between the private operator
achieving a suitable revenue and profit level from the SEZs operation, while at the same time the
Government parties are able to achieve their stated economic and social goals. This requires
clear and positive dialogue between all parties in order that public and private objectives can be
aligned appropriately.
170
Nigeria – Lekki Free Zone
The Lekki Free Zone has attracted significant investment through a partnership between the
Nigerian and Chinese governments. There has been significant involvement of the private sector,
particularly Chinese investors, in the development and operation of the zone.
6.3 Key Economic Success Factors

6.3.1 Selection of Sectors and Activities
The correct choice of SEZ target industry-sectors is important to ensure that the comparative
advantages of the country, region or site are fully utilised and that the key challenges and risks
have been considered. This includes consideration of advantages such as labour force, skills and
training levels, proximity and capacity of input suppliers and preferential market access. A key
component of this is the identification and selection of the most appropriate sectors based on a
robust economic understanding of:
 Economic policy objectives;

 Existing competitive advantages; and
 Activities which would add most value in the context of the vision and rationale for the
SEZ development.
The selection of sectors should be based on a robust feasibility study undertaken through a data
driven methodology such as illustrated below. The sector selection framework should be
developed in line with national economic priorities and strategies.
171
Figure 43 – Sector Selection Methodology
•Establish criteria ‘Filters’

1. Criteria
Filters
•Identify data sources – ideally at ISIC level-2 or equivalent

2. a) Data •Identify ‘Indicators’ for filters (quantitative data-based and qualitative judgements)
b) Indicators
•Define scoring criteria for each indicator

3. Rating
Scales
•Score long list based on indicator metrics

4. Long List
•Weight scores for each criteria and aggregate scores

5. Weighting
•Identify short list based on weighted sector ratings

6. Short List
Source: BuroHappold Engineering 2017
Additionally a forward strategy should also be developed to identify clear pathways up industry
value chains with strategies formulated for fostering both backward and forward linkages
within the domestic economy.
6.3.2 Links to National and Domestic Economy

Criticisms of SEZs as economic enclaves is a common point of contention given that they operate
outside of the regulatory environment and operating constraints of the domestic economy. This
can lead to limitations with regards to knowledge and technology spill-overs. One of the main
barriers to backward linkages, particularly in developing countries, is weaknesses in the scope
and quality of goods and services within the domestic economy.
It is recommended that when designing the SEZ programme design that consideration is given
to important strategic and policy decisions such as trade policy, strategic and sectoral focus,
zone typology, policies on domestic participation and policies on access to local market. These
decisions will have a significant impact on the facilitation and success of backward linkages
within the domestic economy. In particular, the removal of export requirements and tax
exemptions is becoming more commonplace within modern SEZ development and this is
facilitating a more open model of development which encourages greater integration between
zones and the domestic economy.
172
Malaysia – Penang FIZs
The PDC adopted a proactive approach to promote domestic linkages and increase domestic
inputs to MNCs. This included encouraging MNCs to develop local subcontracting relationships
through providing institutional support and creating links with local vendors. In the early
formation of this zone this included compiling a database of local vendors and their capabilities.
The Malaysian government also assisted in supporting domestic vendors through the
introduction of minimum capital requirements on foreign machine tool firms and expanding
incentive schemes to local firms.
6.3.3 Economic Impact Performance Indicators

A successful zone is one where there are key economic impacts achieved – through job creation,
FDI, exports, contributions to the gross value add of the economy, technology and skills transfer,
and linkages to the local economy. In addition, SEZ programmes can have broader
transformational impacts on the economy, such as economic diversification and
industrialisation.
In order to achieve these impacts, there should be a clear vision from the beginning, which
impacts are being targeted and the extent of the impacts. Unfortunately this is often not done in
a precise way and specific targeted impacts are not identified or the extent of the impacts are
not properly quantified.
It is key for an SEZ programme to identify targeted economic impacts through the sectors being
targeted, the size of the zone, the markets being targeted and the types of investors that could
be attracted.
6.3.4 Investment Promotion
Evidence from a number of successful zones both within OIC Member Countries and globally
indicate the importance of effective investment promotion, particularly with regard to attracting
inward investment and FDI. SEZs should develop specific marketing strategies to promote the
value proposition of zones to investors.
In some circumstances, SEZs can be used to demonstrate to foreign investors that a country is
open to new investment or that identified zones offer enhanced conditions, be they economic,
physical or regulatory, that are more attractive for investment than the domestic economy.
Investment promotion activities are therefore crucial in demonstrating the value proposition of
SEZs to foreign investors and stimulating FDI inflows. Our analysis has shown that these
activities are most effectively coordinated by either central entities responsible for the
operation, development or regulation of zones. In addition, case studies such as Malaysia
173
indicate the importance of coordination between zone authorities and national investment
promotion agencies in terms of developing targeted promotional policies.
6.4 Key Physical / Spatial Factors

6.4.1 Proximity to Transportation Nodes
One of the most common factors characterising SEZs that have not been successful is poor site
location, often determined through political rather than economic and technical considerations.
Examples of this include the Philippines Bataan EPZ. Poor site location can often result in heavy
capital expenditure requirements which governments are unable to support adequately.
Farole, Baissac and Gauthier (2012) 126 suggest that there are broadly two key principles to
locational choice for SEZs; economic decentralisation (or dispersion) and economic
concentration. It is observed that SEZs are typically poor decentralisation performers unless the
location has a natural competitive advantage (such as in the case of Tanger Med Zones).
Evidence suggests that zones are more successful when they exploit pre-existing advantages
that are the products of concentration, such as the presence of existing infrastructure such as
ports or airports which offer international connectivity.
Site selection should considered early on in developing a national SEZ strategy and should utilise
a number of key criteria. These criteria should be linked to target industry-sectors and
associated investors and tenants, physical routes to key markets, access to feedstocks, raw
materials, other productive inputs and supply chains, access to labour markets, access to urban
centres and associated services. One of the most important considerations is proximity to or
access to major trade related infrastructure such as sea ports, airports, intermodal freight
systems and transport services more broadly.
The Tanger Med Zones undertook a number of detailed background studies to establish the
appropriate geographical location for the development of the port and industrial platforms in
order to capitalize on the regions comparative geographic advantages. This was part of the
wider masterplan and vision for regional development of industrial zones. The vision was
heavily predicated in the establishment of a successful port facility in which to drive growth in
export orientated industries.
174
6.4.2 Investment in Infrastructure

Infrastructure provision is one of the key influences in the success of SEZ development,
particularly within developing or fragile states. The provision of high quality infrastructure will
be a key comparative advantage when looking to attract FDI. The delivery of high quality utilities
infrastructure in particular is a key challenge but is a key investment determinant, particularly
with regards to reliability and cost. Experience of SEZ development demonstrates a clear
relationship between the economic performance of SEZs and the quality of hard and soft
infrastructure.
There is also the potential for governments and zone authorities to work with development
partners to facilitate investment in infrastructure such as through the provision of low cost
capital loans. PPP arrangements have also been successfully utilised, such as in the case of
Tanger Med Zones to fund infrastructure development.
Examples from Case Studies
The Tanger Med Port Authority (TMPA) is currently undertaking construction of the Tanger Med
II Container Facility as part of a PPP agreement with Marsa Maroc and APM Terminals and has
also secured funding from development bodies to meet the capital costs of investment.
Singapore – Jurong Island
The JTC are currently developing the Jurong Rock Caverns project on Jurong Island. Once
complete this will be the first commercial underground rock caverns facility for liquid
hydrocarbon storage within Southeast Asia. This innovate approach to infrastructure
development will reduce the use of land for low value storage purposes whilst increasing the
capacity of the Island to attract further investment from the petro-chemicals industry and
providing further value add to its competitive advantages within the region.
175
7 Annex I – Case Study Site Visits – Additional Details

7.1 List of Interviewed Persons
Table 7-1 - Details of Stakeholders Interviewed – Tanger Med Zones
Name Position Organisation
Mehdi Tazi Riffi CEO Tanger Med Special Agency
Director International Business
Ahmed Bennis Tanger Med Special Agency
Development
Youssef Imghi General Manager Tanger Med Engineering
Anouar El Haossasse Business Development Manager Tanger Med Port Authority
Rachid Wafdi Procurement Siemens Gamesa Energy
Kamilia Allouch Director of Human Resources Standard Profil
Table 7-2 - Details of Stakeholders Interviewed – Penang FIZs
Lee So Cheran Chief Operating Officer Invest Penang
Senior Manager – Corporate
Shahril Cheah Penang Development Corporation
Communications Division
Assistant Manager – Corporate
Nur Syuhada Penang Development Corporation
Communications Division
Former Head of Penang Penang Development Corporation
Mr Dato’ Seri Singh
Development Corporation (formally)
Former officer at Penang Penang Development Corporation
Ms Lim Pao Li
Former officer at Penang Penang Development Corporation
Anna Ong
Table 7-3 - Details of Stakeholders Interviewed – Lekki Free Zone

General Manager: Projects &
Olumide Ashaju Lekki Free Zone Authority
Corporate Finance
176
7.2 List of Interview Questions

The interviews conducted during the site visit were semi-structured informal interviews based
around the following three key themes of 1) inception and planning, 2) current operation and
growth and 3) investment strategy.
Inception and Planning
 How was the SEZ originally designed and planned?

 What are/were the government’s main objectives in establishing an SEZ programme?
What outcomes was it trying to achieve in both the short and long term?
 Can you explain the process of establishing legal framework?
 Can you explain the process of establishing the policy framework?
 Can you elaborate on the process of establishing institutional framework?
 How does the relationship between operators, investors, developers and the regulator
work?
 Site selection – how was the location selected? What criteria were used to identify sites?
 Sector selection and feasibility – how were the demand conditions assessed? What
competitive advantages is the SEZ considered to have relative to other locations and
competitor countries?
 How was the industrial base developed over time?
 Anchor tenants, phasing and growth strategy?
 Can you identify any particular implementation challenges?
 Land Ownership;
 Infrastructure availability/provision (road/rail, shipping, energy, water, waste
treatment, telecoms);
 Labour force availability; and
 Legal framework.
 What is the specific categorisation of the zone – FTZ, Bonded Zones, Special Economic
Zones etc.
Current Operation and Growth
 Identification of key Overview Statistics

o Number of firms;
o National origin of firms/occupiers;
o Tenancy / Occupancy rates;
177
o Size (ha);
o Lease rates; and
o License Types – industrial, commercial, service etc.
 Development strategy and programme – how was the site developed and by whom?
 How is on-site infrastructure developed?
 Are any superstructures provided (e.g. factory shells)?
 Is there a ‘master developer’ and/or sub-developers for individual plots?
 Management and operational structure:
o Ownership structure;
o Financing;
o General restrictions on entry;
o Sectoral restrictions on entry;
o Operator characteristics;
o One Stop Shop – is there one? (i.e. Government entity which deals with all Govt
departments and licencing arrangements on behalf of the investors /
occupiers); and
o Off-site, enabling infrastructure – whose responsibility?
 Which sectors are most successful in the SEZ and why?
 Connectivity with major transport infrastructure;
 Incentives strategy for attracting different sectors/investors;
o Fiscal;
o Regulatory;
o Financial;
o Infrastructure; and
o Real Estate.
 Key economic performance indicators:
o Job creation – in which industries, sectors?
o What share is ‘direct’ employment versus ‘indirect’?
o Skills development and labour market improvement?
o Local supply chains;
o Export values;
o FDI;
178
o Upgrades in production;
o Integration and linkages of the SEZ with the wider economy – knowledge
transfer; and
o GVA.
 How the SEZ has created stronger relationships with trading partners/countries; and
 Details of particular lessons learnt.
Investment Strategy
 Operational and governance structure;

 Relationship between SEZ developer, operator and regulator;
 Market and promotional strategy for potential investors, occupiers and tenants; and
 Legal and regulatory environment.
179
8 Annex II – Bibliography
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ADBG (2015) Asian Economic Integration Report 2015: How can Special Economic Zones
Catalyze Economic Development.
Athukorala (2014) Growing with Global Production Sharing: The Tale of Penang Export Hub,
Malaysia.
Bräutigam, D.A. and X. Tang. (2013) Going Global in Groups: Structural Transformation and
China’s Special Economic Zones Overseas.
Cebotari and Dennis (2008) A Public-Private Partnership Brings Order to Aqaba’s Port. IFC and
World Bank.
Chai and Im (2009) The Development of Free Industrial Zones – The Malaysian Experience.
Cling, J and Letilly, G (2001) Export Processing Zones: A Threatened Instrument for Global
Economy Insertion?
DLA Piper, (2017) Special Economic Zones Best Practice Guide and Case Study Booklet,
manuscript.
Engman, M, O, Onodera and E, Pinali (2007) Export Processing Zones: Past and Future Role in
Trade and Development.
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Existence (2011)
Farole, T and Akinci, A (2011) Special Economic Zones: Progress, Emerging Challenges and
Future Directions.
Farole, Baissac & Gauthier (2012) Special Economic Zones: A Guidance Framework for
Policymaking.
FdI Magazine, (2016) Global Free Zones of the Year 2016.
FIAS (2008), Special Economic Zones: Performance, Lessons learned and Implications for Zone
Development.
Gokhan Akinci and James Crittle, 'Economic Performance and Impacts', in Gokhan Akinci and
James Crittle (eds), Special Economic Zones: Performance, Lessons Learned, and Implications
for Zone Development (WB Group, 2008).
180
Jing & Yong (2014) The Successful Operation of Dubai Jebel Ali FTZ on Shanghai FTZ
Development Enlightenment.
Kechichian, E. and M.H. Jeong, (2016) Mainstreaming Eco-Industrial Parks: Conclusions from the
Eco-Industrial Park 2015 Event in Seoul, Washington D.C.: World Bank
Koyama, N (2011) SEZs in the Context of Regional Integration: Creating Synergies for Trade and
Investment.
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182

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Special Economic Zones in the OIC Region:

Learning from Experience

COMCEC Coordination Office

COMCEC Coordination Office

For further information please contact:

1 INTRODUCTION AND BACKGROUND TO THE STUDY 6

2 SPECIAL ECONOMIC ZONE TYPOLOGIES 7

3 LEARNING LESSONS FROM GLOBAL SEZ EXPERIENCE 23

4 TRENDS IN SEZS IN OIC MEMBER COUNTRIES 34

5 LESSONS LEARNT FROM SEZ CASE STUDIES 66

6 SYNTHESIS AND CONCLUSIONS 162

7 ANNEX I – CASE STUDY SITE VISITS – ADDITIONAL DETAILS 176

8 ANNEX II – BIBLIOGRAPHY 180

ASEZA Aqaba Special Economic Zone Authority

The objective of the study is to achieve the following:

1. To provide a resource document on OIC SEZs;

Global SEZ Experiences

SEZ Development in OIC Member Countries

Source: BuroHappold Analysis 2017

Conclusions and Recommendations

Organizational Success Factors

 SEZ programmes need to be programmed and designed as core components of a

 Legal and regulatory framework should specifically consider investor requirements;

Economic Success Factors

Physical / Spatial Success Factors

1 Introduction and Background to the Study

The objective of the study is to achieve the following:

 To provide a resource document on OIC SEZs;

1.2 Report Structure

 Section 2: defines SEZs, including an overview of the dominant typologies, governance

2 Special Economic Zone Typologies

2.2 Definition of SEZs

 Investment conditions – including the provision of infrastructure, serviced land and

1. A dedicated regulatory regime;

2.3 Working SEZ Typologies

Source: BuroHappold 2017

2.4 Organisational Structure

 Regulator – typically a government body with oversight authority. The regulator

There can however be political difficulties in establishing effective One-Stop-Shops as it requires

2.5 Ownership of SEZs

 Public sector provision of off-site infrastructure and services (utilities, connections,

2.6 Economic Rationale for Establishing SEZs

2.6.1 Attracting Foreign Direct Investment (FDI)

2.6.2 Facilitating Economic Diversification

2.6.3 Employment Creation and Skills Upgrade

Box 3 - Jordanian SEZs and Employment Opportunities for Women12

2.6.4 Wider Economic Reform and Experimentation

Box 4 - China and Economic Reform through SEZs1314

2.6.5 Foreign Currency Accumulation

2.6.6 Creating Clusters of Specialised Economic Activity

2.6.7 Deepening and Extending Industry Value Chains

2.7 Incentive Schemes used in SEZs

2.7.1 Fiscal and Financial Incentives

Financial incentives typically consist of financial support to individual enterprises to encourage

 Income tax allowances;

2.7.2 Non-fiscal Incentives

Typical non-fiscal incentives can include:

 Single-window fast track clearances;

16 A. Mukherjee et al. (2016) Special Economic Zones in India. ICRIER, India.

Box 6 - Flexibility of Labour Laws17 18

2.7.3 Lessons Learnt in Incentive Schemes

17 Korean Free Economic Zones, (2015) http://www.fez.go.kr/global/en/why/incentive.do#tab3.